157-10014-10144

| 2025 RELEASE UNDER THE PRESIDENT JOHN F. KENNEDY ASSASSINATION RECORDS ACT OF 1992 |

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JFK Assassination System
Identification Ferm

Agency Information

SSCIA
137-10014-10144

MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE

O7-M-49

Document Information

SSCIA

00/00/1976
263

SS8CSGO, REPORT

REPORT
Secret
Consulted
Withhoid
01/05/1999

VG

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AGENCY

RECORD NUMBER
RECORDS SERIES
AGENCY FILE NUMBER

ORIGINATOR
FROM

TO

TITLE

DATE

PAGES
SUBJECTS

DOCUMENT TYPE
CLASSIFICATION
RESTRICTIONS
CURRENT STATUS

DATE OF LAST REVIEW
OPENING CRITERIA
COMMENTS

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+2 6s a8 Se 28 ob 4e

JFK ASSASSINATION SYSTEM

IDENTIFICATION FORM
AGENCY INFORMATION

SSCIA
157-10014-10144

MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE

07-M-49

00/00/76
263

SSCSGO, REPORT

REPORT

SECRET

REFERRED
POSTPONED IN FULL
01/05/99

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TABLE OF CONTENTS

PROPRIETARIES

-I. Introduction and Philosophy of Use ...... 2... 0... eee eee , 1
A. Operating Proprietaries 2... eee ee ee tes 3
B. Non-Operating Proprietaries ...... 0... 0c eee eee eee -_ 7
II. Statutory Authority for Proprietaries ..............0005- 9
III. Specific Controls See eee ee eee eee ee eee 10
A. Agency Regulations and Policies ........0... cece eee 10
B. Project Reviews and Control ............ eben e eens 11
C. Financial Controls/Operating Companies and Non-
Operating Companies Keeping Books of Accounts ...... 11
D. Financial Controls/Non-Operating Companies Except
Those Keeping Books of Accounts ................-+-- 13
E. Treatment of Profits 2.0... . cece te teen enes 14
F. Disposition of Funds Returned from Proprietaries ... 16
G. Disposal of Proprietaries 2... 0... eee eee 16
H. Relations with Tax, Regulatory, and Other Agencies . 18
Iv. A Description of the Various Proprietaries ...... bees eee 21
Proprietary List ...........5. Lee ee eee eee eee 24
Employees of Proprietaries as of October 1975 ......... 41
Funding and Payroll Mechanisms .............-- ee eeeeees 42
Description of Major Headquarters-Controlled
Proprietaries as of September 1975 ........ 0... cee ueee a. 43
Listing of Proprietaries During the Period 1952 through

1974 (Total 399) 22. cc ee eee ete 46

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(ii)

V. The Disposal of Agency Proprietaries

Lee ne eens Beene eee 5D
a. An Overview 20.00... cece cee ence eee eee lasses 59
Entities Dissolved ae eee eee etna nates vbeeb beeen 63
Entities Sold 2... cece eee ene 68
Entities "Otherwise Disposed Of" ................... 71
Description of Disposition of Entities Sold or

Otherwise Disposed Of .......... eee tees twee 74

b. The Sale of SouthernAir Transport, Inc.: A Case
Study In Disposal of a CIA Proprietary ............. 89-1
Background .... cee ee eee Sl eeeeeee Lecce ees 89-1
The Sale oo... ec ee ee ene 89-4

Declassification of Relationship With CIA ...89-14

Conflict Of Interest ....... ccc ccc cece eeeees 89-15
Conclusion 2... eee ee eee eee 89-17
VI. Project MHBOUND 0... ... 0c cee ee tte eee enes 90

VII. Beyond "Doing Business":. Peak Non-Government Security
Investments by Proprietaries Active as of December

31, 1974 .........- eee Oe eee eae Lee eee ees 95

VII. MHMUTUAL: The Insurance-Investment Complex ............. 99
a. A Brief History 22.0... cee eee eee eee es 99

b. Gurrent Status 0.0... . eee ce ee eee eee 106

Stock Portfolio Performance Chart ............0.. 108

IX. The Air Proprietarles 2.0... eee 113
KX. issues Posed, Conclusions, and Recommendations ............ 129

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. 3 qin?
me CORE, PROPRIETARIES - ane

I. INTRODUCTION AND PHILOSOPHY OF USE ”

Questions have arisen as to CIA's use of proprietary mechanisms

to help carry out the Agency's missions. In particular, concerns

have been expressed about the Agency's financial and management control
over these entities and about the treatment of funds related to such
entities. A careful review of these entities has revealed that CIA's
proprietaries are appropriately limited and controlled with careful
consideration given to their use within the spirit and letter of the
law.

Proprietaries fall into two main categories:

1. Operating companies that actually do business as
would any private firm; and

2. Non-operating companies or entities that appear to
do business under commercial guise.

These entities may be legally constituted as corporations, partner-
ships, or sole proprietorships; or they may have no such legal standing,
i.e., they may be "notional" entities which have bank accounts and
backstopped addresses controlled by the Agency. Corporate proprietaries
are incorporated in accordance with the statutory provisions of the
jurisdiction of incorporation, are subject to the same review as any
corporate entity within that jurisdiction, file applicable state and/or
federal tax returns, and obtain the necessary licenses to conduct their
normal business. The purposes served by them are two-fold: they provide
cover, attribution for funding, and administrative assistance to agents

Net oan are

. - ne:
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and covert activities; and they provide services not securely available
through normal commercial facilities. Because these instrumentalities
are established as private organizations, they must be established

and managed, to the extent possible, in accordance with practice and
requirements that are normal for the types of enterprises they give

the appearance of being.

Of the legally constituted entities, the Agency uses the corporate
form in most cases because of the advantages and flexibility of corporate
Management control. These corporations are legally organized under the
laws of a state, country, or other jurisdiction and are either wholly
owned by CIA or controlled through majority stock ownership. Services
of bona fide businessmen are enlisted as nominee officers, directors,
and stockholders.

The Agency generally has employed proprietaries when it was the
only way, or clearly the best way, to achieve an approved objective.
Under Agency rules proprietaries are established or allowed to continue
in existence only so long as they contribute to accomplishment of the
Agency's mission and remain the most advantageous operational means of
achieving certain particular and necessary objectives. Current policy
calls for limited use of operating proprietary mechanisms. The capa-
bility to use the mechanism is to be retained (this the Agency terms
its “capability in being"), and smaller entities used.

A teview of Agency files shows that the number of operating
proprietaries has been consciously pared by about 50 percent since the
mid 1960's. These reductions began as a result both of the Katzenbach
guidelines associated with the National Student Association affair in

1967 and the CIA's own IG survey in that same year. In addition, the

HY 50955 Docld:324234532 Page 7?

need for proprietaries has declined as a result of a general shift in
emphasis away from covert action; transfer of Radio Free Europe and
Radio Liberty to the Board of International Broadcasting with funding
through State Department; continuing liquidation of the assets of the
Air America complex as requirements for CIA support in Southeast Asia
have diminished; the sale of Southern Air Transport and the continuing
liquidation of assets of Intermountain Aviation with their exposure
in the press and the decreased need for contingency air capabilities.

The evidence establishes that activities of all proprietaries,
directly or indirectly, support the Agency's foreign intelligence collectio:
or covert action missions. Some of these proprietaries are located
within the United States for reasons of operational or administrative
necessity, but their ultimate impact is overseas. Some of the question-
able domestic uses of these entities is dealt with in the sections of
the Report on "Chaos" and related programs. And in one area, MHMUTUAL,
serious questions remain as to the propriety of using such a mechanism
to provide insurance and retirement benefits. This problem is detailed
later. (See Section VIII).

A, Operating Proprietaries

As discussed in greater detail later, operating proprietaries
conduct business in the commercial sphere, but they are not in direct
competititon with privately owned corporations to such a degree as to
deprive the private companies of lepitimate income. There is no doubt,
however, that they were and are in competition. The Agency has been
careful to limit the amount of commercial business engaged in by these
proprietaries to only that necessary to support the viability of the

commercial cover and keep it alive in the commercial world. Revenues

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have been used as partial offsets to operating costs, Aggregate
profits over the years have been relatively small. Oniy two proprie-
taries have shown significant profits: the Air America complex in
fulfilling mostly Government contracts in Southeast Asia, and the
insurance company handling trust funds and insurance (MHMUTUAL).

The air proprietary overview, infra Section IX., details the dilemmas
posed by size. Moreover, it sheds light on questions concerning
whether commercial viability became more of a bronze goed-than was
necessary to maintain adequate cover.

Operating proprietaries may be large or small in terms of capital-
ization and total assets, depending upon the functions they perform.
When the commercial purpose of an operating proprietary is incidental
to its CIA mission -- such as an export-import firm which engages in
commercial operations only to the extent necessary to provide cover
for a CIA officer in a foreign country -- a minimum capitalization,
usually in the neighborhood of $25,000 or less, is all that is required.
Examples of an operating proprietary in which commercial operations
are incidental to the Agency mission are:

A United States frozen seafood importing company which
operates in the Far East and provides cover for an Agency
employee engaged in intelligence activities. The Agency
provided $25,000 in capital to purchase and activate a
dormant but long-established privately-owned United States
seafood distributing company. The former owner and his
partner, who are cleared and witting, provide training,
business management, and product distribution in the
United States for one-half the profits on seafood imports
financed by the proprietary. The Agency subsequently
provided $10,000 annually for fiscal years 1972, 1973, and

- 1974 as working capital. The proprietary since 1971 has

provided excellent cover with a minimum amount of business.
As of 20 June 1974, the proprietary had assets of $104,222.67
and a net worth (assets minus Liabilities) of 874,051.15.

The company's financial accounts are handled by an Agency
proprietary management firm.

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A foreign travel service company which operates in a Southeast
Asia country and provides cover for an agent tarpeted against
the local Communist Party. The company was established in 1973
with an initial investment of $5,900.

Operating proprietaries whose commercial purposes are in themselves
essential to the CIA mission require much Larger capitalization and
investment, They are staffed by Agency personnel plus cleared commer-
cial employees as required. Among the Agency's operating proprietaries
of this type are four management companies which provide commercial
assistance to other proprietaries and an audit firm which conducts
commercial audits of operating companies and those non-operating
proprietaries with substantial assets, The Agency's largest operating
proprietaries are Air America, an insurance complex, and the aviation
facility, Intermountain Aviation, Inc. The assets of Intermountain
have been sold, with operations ceasing. on 28. February 1975; and:the.
corporation is in the process of being dissolved.

Air America, the Agency's largest proprietary, which is in the
process of liquidation, provided aircraft in support of Agency operations

in Southeast Asia. This support has been under cover of a commercial
flying service in fulfillment of U.S. Government contracts. Corporate
Headquarters has been in Washington, D. C., with field Headquarters ©
in Taipei, Taiwan.

The insurance complex provides a mechanism for the payment of
annuities and other benefits to sensitive agents and for self-insurance
of risks involved in covert operations which, for security reasons,
cannot be attributed to the U.S. Government or handled through private
firms. The complex was formed in 1962 as a clandestine commercial
support mechanism to provide death and disability benefits to agents

or their beneficiaries when security considerations precluded payments

HY 50955 Bocld:32423532 Page 10

attributable ro the U.S. Government. This function was broadened

to include self-insurance for many risks involved in covert operations,
including property risks incurred by operational activities of Agency-
owned air and marine companies. From an early date, the complex has
administered agents' escrow accounts and life insurance, and provided
annuity and pension programs for selected agent personnel employed by
the Agency. These programs are solely for the purpose of meeting the
Agency's obligations to agent-type personnel who have rendered services
over a substantial period of time and cannot be handled under normal
U.S. Government retirement programs. Individuals who qualify for the
CIA Retirement System or the Civil Service System are not handled
through the proprietary system. In addition, the complex has been
used to provide a limited amount of support to covert operations --
specifically, for the acquisition of operational real estate and as

a conduit for the funding of selected covert activities.

Intermountain Aviation, Inc., has the purpose of providing a
variety of nonattributable air support capabilities available for
quick deployment overseas to support Agency activities. The Agency
is in the process of disposing of its assets and terminating this
activity...

As of 1 July 1974 there were 71 operating proprietary companies,
of which 21 are part of the Apency's proprietary insurance complex.
The combined net worth (assets minus liabilities) of these companies
is approximately $57.3 million. Although some, such.as those in the
insurance complex, are commercially self-supporting, most operating

proprietaries usually require budgetary support.

HY 50955 Bocld:32423532 Page il

B. Nonoperating Proprietaries
Nonoperating proprietaries vary in complexity according to their

Agency task, are, for the most part, either corporate shells or less
that facilitate foreign operations, and clearly pose no competitive
threat to bona fide businesses. The most elaborate are legally
Licensed and established to conduct bona fide business. They have
nominee stockholders, directors, and officers and are generally
directed by one of four Agency proprietary management companies.
The company address may be a Post Office Box, a legitimate address
provided by a cleared and witting company official or attorney, or in
a few cases the address of a proprietary management company. They
maintain bank accounts, generate business correspondence, keep books
of account which can withstand commercial and tax audit, file State
and Federal tax returns, and perform normal business reporting to
regulatory authorities in order to backstop fully their Agency tasks.
They are moderately capitalized, generally around $5,000, and their
net worth at any one time varies according to the Agency task they
are performing. As of 31 December 1973, 38 of these companies had
a combined net worth of approximately $325,000. Of this amount,
almost $200,000 was operating capital for three companies which
provide cover for several Agency personnel. Examples of two non-
operating companies which are commercially managed, keep books of
account, and can withstand commercial and tax audit are:

A Florida corporation capitalized at $7,000 and whose legal

address is the office of a cleared and witting attorney.

Under the auspices of the Florida corporation, an Agency

officer established a branch office in a Central American

country and conduets a sporting goods business which provides

him cover. Administration of the corporation, including

purchase of inventory for the branch office, is handled by
a proprietary management company.

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A Liechtenstein Anstalt which an Agency nominee established
using a reliable but nonwitting Liechtenstein lawyer as a
resident agent. The Anstalt was used to purchase a property
in a European country from which an audio operation was
mounted against an installation of a Communist country.

Upon conclusion of the operation, the property will be sold
by the Anstalt and the proceeds returned to CIA via its
nominee.

Requiring less elaborate commercial administration because of
the nature of Agency tasks performed are 31 legally incorporated
companies which are directly managed by Agency Headquarters specialists
operating in alias as signatories to the company bank accounts. Each
of these companies generally have a capitalization of $5,000 or less
and are domiciled in the offices of cleared and witting attorneys.

No commercial books of account are kept, and in the event of a tax
audit the Agency has to brief the auditing authority. Depending on
use, administration may be as simple as maintaining bank accounts and
filing annual franchise taxes or more extensive as required when
obtaining Employee Identification numbers, paying personnel, with-
holding taxes and Social Security, and filing tax returns. Examples
- of this type of Headquarters-managed proprietary corporation are:
A Nevada proprietary corporation domiciled at the offices of
a California law form. Three members of the firm serve as
Agency nominee stockholders, directors, and officers for
the proprietary which hélds title to two aircraft used by
the Agency for flight training and testing avionics equipment.
In this case, only administration is required to maintain a
bank account, file a franchise tax, and coordinate with the
law firm. ;

Although not proprietary corporations, but proprietaries in the
sense of being Agency-owned and administered, are 64 ostensible sole-
proprietorships. The Agency establishes and registers these sole-

proprietorships in the name of fictitious persons and opens a bank

HW 50955 Dockd:324234532 Page 13

account on which Agency officers in alias have signatory power.
Arrangements are made with cleared and witting businessmen to
provide a domiciliary address for these entities at a law office
or telephone answering service. These entities, like the proprietary
corporation administered by Agency Headquarters specialists, provide
cover, payrolling, and tax attribution for Agency personnel and are
similarly administered. .

Another type of entity used by the Agency and a proprietary
only in the sense of being Agency-owned and administered is exempli-
fied by some 215 notional companies which are not legally registered
but have names and bank accounts controlled by the Agency. The Agency
arranges with cleared and witting attorneys or proprietors of telephone
answering services to provide a domiciliary address and to refer any
queries to the Agency specialists concerned. These notional entities
are used to provide status and operational cover for Agency personnel
involved in all types of high-risk intelligence operations. They are
also used as ostensible clients for purposes of funding Agency pro-
prietaries or bona fide American companies which provide

cover and payrolling of Agency personnel.
II. STATUTORY AUTHORITY FOR PROPRIETARIES

The Agency's statutory authority to spend money for proprietary
corporations in support of Agency operations derives from Section 8(b)
of the CIA Act of 1949, This Act states:

"The sums made available to the Agency may be expended without
regard to the provisions of law and regulations relating to
the expenditure of Government funds; and for objects of a
confidential, extraordinary, or emergency nature, such
expenditures to be accounted for solely on the certificate

of the Director and every such certificate shall be deemed

a sufficient voucher for the amount therein certified."

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The language contained in Section 8(b) is adequate authority to
exclude the operation of these proprietary corporations from the

law governing Government corporations in 31 U.S8.C.A. 841 et. seq.
However, the CIA General Counsel ruled in 1958 that the CIA should
comply with the principles in that Act to the extent possible, and
this has been done. Attached as Appendix A is a classified Memorandum
of Law by the Agency's Office of General Counsel on CIA's authority to
acquire and dispose of a proprietary without regard to provisions of
the Federal Property and Administrative Services Act, which position
was upheld by the U.S, District Court in the Southern District of
Florida in dismissing the suit Farmer vs. Southern Air Transport on

17 July 1974.
III. SPECIFIC CONTROLS

The formation and activities of proprietaries are controlled
through various mechanisms to assure their proper use, as discussed
_ below, .

A. Agency Regulations and Policies

Headquarters Regulation 230-8 and Headquarters Handbook 230-1
prescribe the administrative procedures to be followed in the estab-
lishment, operation, and liquidation of proprietaries (see Appendix B).
An Administrative Plan (specifying the operational purpose, admini-
strative and management procedures, and cost) and a Liquidation Plan
(specifying details of liquidation and disposition of funds when
liquidation is contemplated) must both be coordinated among components
concerned and approved at appropriate management levels. This regu-

latory control along with policy memoranda are intended to assure

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proper conduct by entities. Each Agency component involved is
responsible for compliance, and the Chief of the Cover and Commercial
Staff, the Director of Finance, and the Comptroller are particularly
watchful in their areas of concern.

B. Project Reviews and Control

The controls and procedures applicable to each operating proprie-
tary are specified in a project outline and administrative plan
approved at the Deputy Director level. Normal control and administra-
tion is carried out by a project officer at Headquarters. Semi-annual
reviews are conducted to determine whether or not the operational
need still exists, and regular audits are performed to assure proper
management and financial accountability. Proprietaries are liquidated
as their usefulness ends; new ones are formed as needed.

C. Einancial Controls/Operating Companies and Non-Operating

Companies Keeping Books o ecounts

Under Agency regulations, these proprietaries are established
and managed to appear to be consistent with normal commercial practices
and requirements of the type of enterprise concerned. Specific require-~
ments for the general management and financial controls of each such
proprietary are provided in the administrative plan described above
which specifies the basic framework within which the instrumentality
is to operate. All facets of an administrative plan relating to
funding the proprietary and its financial management are subject to
the concurrence of designated representatives of the Director of
Finance and the Comptroller. A primary purpose of this. coordination

is to assure that the financial controls and procedures prescribed

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for the proprietary are compatible and consistent with normal practices
and requirements for the type of instrumentality being established.
The Director of Finance representative is the Chief of the Commercial
Systems and Audit Division, a position normally occupied by a certi-
fied public accountant.
The initial and all subsequent passages of funds to such proprie-
‘taries are from the current year Agency operating budget. Receipts
of funds by the proprietary are documented as appropriate ostensibly
to appear to be from a source usual to a commercial enterprise of
similar type, e.g., capital stock, paid in capital, income from
ostensible sales, ete. .
The Agency treats all disbursements to such proprietaries as
current year budgetary expenditures and concurrently establishes as
a control mechanism a fully reserved investment account which is
reconciled periodically to reported net worth of the proprietary as
reflected in required financial statements received from each proprie-
tary. Each such statement is reviewed to reconcile the approved
financial activity of the proprietary to reported changes in net
worth before adjusting the Agency investment account to conform with
the reported net worth. |
All control documents evidencing Agency equity or interest in
the proprietary, e.g., executed stock certificates, irrevocable stock
‘powers, declaration of trust, etc., are held in safekeeping by the
Commercial Systems and Audit Division/OF provided that when such
documents need to be retained by the proprietary, a report will be
made to identify the documents retained, location, name of custodian and

reason for the retention, and copies of the documents, if appropriate.

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The Chief of the Agency Audit Staff is responsible for the audit
of Agency proprietaries, utilizing Audit Staff personnel under a .
suitable cover arrangement or witting or unwitting public accounting

firms as is most appropriate to the requirements of a particular

proprietary. An example of the type of audit conducted appears at p. 105

Seetion VIiTIand concerns MHMUTUAL, the proprietary insurance-investment

complex.

D. Financial Controls/Non-Operating Companies Except Those
Keeping Books of Account j

Entities in this category are financed if financing is required

through the establishment of bank checking accounts on which Agency

officers have signatory power in alias. All such accounts are maintained

-in the accounting records of the Agency as current asset accounts
subject to monthly reconciliation with statements of accounts issued
by the depository banks.

All passages of funds to these accounts add te the accountable
balance of the accounts. .No income is produced by these activities.
All disbursements from these accounts are charged as current expendi-
tures in liquidation of obligations of the operational activity on
behalf of which the entity was established.
| Signatories are Agency officials who in each case execute a
declaration of trust acknowledging Government ownership of the account.
Payments are initiated only in response to request of an authorized
official responsible for the operational activity for which the
entity was established.

The Chief of the Agency's Audit Staff is responsible for the

audit of all accounts maintained for these entities.

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Balances of each of these accounts are monitored periodically
to assure that balances do not exceed a level warranted by the activity
for which the respective account was established. Balances excess
to current requirements and balances for entities which are dissolved
are returned to the Agency and in turn remitted to the U.S. Treasury
as Miscellaneous Receipts. (See discussion of Disposition of Funds
Returned from Proprietaries on p. 16.)

E. Treatment of Profits

The CIA General Counsel, in a 6 January 1958 memorandum, ruled
that “income of proprietaries, including profits, need not be considered

' miscellaneous receipts to be covered into the Treasury but may be

used for proper corporate or company purposes." This subject was
reviewed and the opinion reaffirmed by the General Counsel in July
1965. The policy of retaining profits has continued, although as
already noted only a very few of Agency proprietaries have ever been
profitable. The CIA's legal basis for retaining profits for the use
of the operating corporate entities is discussed below.

. Section 104 of the Government Corporations Control Act, 31 U.S.C.
849, provides that Congress shall enact necessary legislation to make
available for expenditure such corporate funds or other financial
resources or limiting the use thereof as the Congress may determine.

It is further provided that "this section shall not be construed as

preventing the Government corporations from carrying out and financing

their activities as authorized by existing law . ." The legislative
history explaining this section of the act states that "in cases where

no other law required a congressional authorization of expenditures,

HW 50955 Bocld:32423532 Page 19

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the corporation, if it had means of financing other than annual appro-
priations, could continue to operate in the absence of any action by
Congress on its budget program.” The statute creating a particular
Government corporation may provide specifically that the corporation
may use its profits in the conduct of its business. .

The Government Corporations Control Act certainly did not conten-
plate Government corporations in the sense that the Agency must have
them. Neither is it feasible for Agency proprietaries to be created
by act of Congress or overseen precisely as provided for in the normal
Government corporation in the Act, Nevertheless, the Agency has felt
that the appropriate and reasonable policy would be to treat and control
them insofar as possible in accordance with the terms of that law,
Such being the case, the Agency believes there is no need to have more
restrictive rules applied to its corporations in the use of funds,
including profits, than are applied to Government Corporations under
the other Act or statutes. Thus, the use by a proprietary of its

_ earnings to carry on its corporate affairs without an offset against
Agency appropriations is considered a legitimate practice and does not
constitute an illegal augmentation of appropriations.

With rare exception, principally the Large air and insurance

_proprietaries, operating proprietaries have not been self-sustaining
from bona fide income. Such income, including profits, as is received
is retained by the proprietaries consistent with the usual operating
practices of business enterprises.

The use of proprietaries' profits, however, is controlled. by

annual reviews and audits within the Agency of the total capital,

HY 50955 Bocld:32423532 Page 20

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investment, and profits situations of the corporations in the context
of the operational objectives and the cover needs of the corporations.
In effect the annual project review is based upon an’ audit as searching
as that required for statutory Government corporations.

F. Disposition of Funds Returned from Proprietaries

Any proprietary with funds excess to its current or foreseeable
needs is required to return such funds to the Agency. Also, all funds
realized from the Liquidation or termination of a proprietary are
returned to the Agency except in a limited number of situations when
transferred to another proprietary for "similar use." On the basis
of an opinion of 3 February 1975 by the CIA General Counsel, the Agency
has revised its policy for the treatment of all returns of funds from
proprietaries; all such returns are to be remitted to the U.S. Treasury
as Miscellaneous Receipts. Prior to this change in policy, returns
had been treated as refunds of the previously recorded expenses up to
the amount of such expense for a particular proprietary with any excess
amounts returned to the Treasury as Miscellaneous Receipts (Appendix Cc):

_G. Disposal of Proprietaries

Air America, the Agency's largest proprietary, at its peak had
total assets of some $50 million and more than 8,000 employees (who
accounted for more than 90 percent of the people employed directly
by all proprietaries). It is in the process of being liquidated
because it is no longer required. The Air America complex included
a number of other companies with the Pacific Corporation as the holding
company. The general plan for liquidation of Air America is for the
Pacific Corporation to sell off Air America, Inc. and Air Asia, Ltd.

( the Taipei maintenance operation). A private New York firm (R. Dixon

HW 50955 Bocld:32423532 Page 21

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Speas Company) was engaged to estimate a fair market value for the
complex. Although an intensive search for competitive bidders was

made, the Agency was unable te find buyers for any of the affiliated
companies except the Taipei maintenance facility. The sale of this
company as a going concern to the successful bidder was closed on

31 January 1975. The remaining parts of Air America are being
liquidated by sale of individual assets upon completion of existing
contracts. Funds realized from the sales could be as much as $25 million
and will be returned to the Treasury.

Agency financial support for Radio Liberty and Radio Free Europe,
both sizeable proprietaries, was terminated in FY 1971 and responsi-
bilicy for their funding and cperation was assumed by the Department
of State.

Southern Air Transport was sold on 31 December 1973 because its
contingency capability was no longer needed. The Agency realized
$6,470,000 from this sale. Cash received was $3,345,000 which included
a $1.2 million award in arbitration of a dispute over the proceeds of
the sale of an aircraft by Southern Air Transport after the sale of
the company by the Agency. The balance was paid by the purchaser to
Air America to retire a debt owed by Southern Air Transport. A group
of employees of Southern Air Transport filed a civil action disputing
the propriety of the sale of the company by the Agency, but the case was
dismissed with prejudice on 17 July 1974.

A more detailed list of various disposals of smaller proprietaries
and what, if any, relationships remained thereafter between the Agency

and any subsequent entity appears infra page 39, Section V.

HW 50955 Bocld:32423532 Page 22

~ 18 -

H. Relations with Tax, Regulator

and Other Agencies

i

Management and control of proprietaries often requires "cooperative
interface" with outside agencies to gain beneficial working relation-
ships and, as necessary, any appropriate authorizations. These
relationships are described below.

For those proprietaries which maintain commercial books and other
financial records. U.S. and State tax returns are prepared annually by
commercial managers based on the corporationts financial records. For
other entities where only internal Agency records are maintained, tax
returns are prepared by Agency specialists in a manner to reflect the
normal operations of a bona fide commercial business. Close coordination
is maintained with the Internal Revenue Service, which is aware of the
Agency's use of proprietary commercial entities. In the event an Agency
entity is singled out for IRS audit, it has been agreed that the Agency,
through the Office of General Counsel, will notify IRS of Agency
ownership. The IRS then cancels the audit in order to conserve auditor
manpower. .

The Air proprietaries necessitated contact with the Civil Aeronautics
Board, the Federal Aviation Agency and the National Transportation
Safety Board. Specific problems were discussed, usually with the
Office of General Counsel of the agency concerned by the CIA General
Counsel.

The Air Proprietaries dealt with State Department and the Agency
for International Development, generally on a contractor/customer basis,
although senior personnel of those agencies were advised by the Agency

of its ownership of the companies.

HW 50955 DoecFd: 32423532 Page 24

- 19 -

These proprietaries which engaged in the shipment of weapons
or other items on the Munitions Control list required Agency assistance
in obtaining the necessary export licenses. The ownership of the
companies was discussed with State Department Office of Munitions
Control and the Bureau of Alcohol, Tax and Firearms.

The radio proprietaries, while funded by CIA, did receive policy
guidance from the Department of State to ensure that their broadcasts
were in conformance with U.S. foreign policy.

The Agency has intervened with the Department of Labor on behalf
of survivors of employees of the proprietaries in order to assist
them in receiving the available benefits under the applicable Workmen's
Compensation Acts.

The Agency, on behalf of the proprietaries, interceded with the
Defense Department to have the proprietaries’ contracts exempt from the
Renegotiation Board, There was a normal exemption based on the rules
of the Board which was given for contracts performed entirely outside
the United States.

CIA requested the Air Force to consider the interest of the Agency
in connection with the awarding of commercial contracts to its proprie-
taries. Initially this was done in the mid-1950's on the basis of a
policy decision by the Operations Coordination Beard that the air
proprietary in the Far East, then operating at a deficit, was an
instrument of value to national security. The Agency was able to
maintain a standby capability without budget subsidies if awarded
enough business to support large commercial aircraft. This applied to |

the passenger and cargo aircraft.

HW 50955 Bocld: 32423532 Page 24

- 20 -

The U.S. Forest Service was advised of the ownership of a pro-
prietary and asked to award contracts to the’ proprietary in order to
help it develop a commercial posture and permit its aircraft to be

associated with that type of flying.

HW 50955 Bocld: 32423532 Page 25

~ 21 -

TV. A DESCRIPTION OF THE VARIOUS PROPRIETARIES

The operational needs of the Agency have required it to venture
forth into many areas where proprietaries were a perceived necessary
vehicle. These areas have included air support, media publications,
proprietary management (accounting and management) , insurance (personal
insurance coverage, annuity coverages, and escrow account maintenance
for agent personnel), covert procurement (general merchandise, arms,
ammunition and police related equipment), cover support (commercial
cover, such as management consultant firms, importing companies, travel
agencies, energy research organizations, behavior psychology companies),
personnel services (tape transcription, personnel investigations for
security clearances and approvals, public accounting firms, electoral
and political analysis firm keyed into foreign elections), operational
support (purchase of condominiums in foreign countries, sporting goods
business in United States with sales in Latin America, various overseas
foundations to provide grants, export/import firms, a company which .
holds a note for certain U.S. Government funds borrowed by a consortium
of aluminum companies for the extraction of bauxite in Guinea to insure
U.S. contrel of bauxite extraction aétivicles in Guinea), and various
other miscellaneous categories.

The number of employees of proprietaries as of Oetober 30, 1975
was 321. O€ this number 78 were U.S. Agency employees, 178 were U.S.
proprietary hires, and 65 were foreign proprietary hires. The various
types of funding and payrolling mechanisms used by the Agency (Devised

Facilities incorporated in the U.S.; Devised Facilities-Notionals which

HW §0855 Doecld: 324273532 Page 26

~ 22 -

are not incorporated but are sole proprietorships; and Notionals,
which are merely business names, are not formally constituted or
registered which do business at the address of an answering service
or witting attorney) totaled 326 as of October 31, 1975. There were
31 Devised Facilities, 67 Devised Facilities-Notionals, and 228
Notionals.

There follows a list of some of these proprietaries with brief
descriptions of their functions. There are 97 in number. Following
that list is a description of the major headquarters-controlled proprie-
taries provided as of September 24, 1975. In addition, there is
included a listing of all proprietaries during the period 1952 through
1974 (total 399) with the highest net equity balance on agency records
and the net worth balance as of December 31, 1974. The smallest net
worth balance is $400 and the largest is $31,778,000.

The year 1967 was selected to demonstrate the number of employees
in use by Agency proprietaries. In that year, the Agency owned approxi-
mately 158 proprietaries. These proprietaries employed approximately
14,416 persons. Ninety-two percent of the employees were accounted

for by three proprietary complexes as follows:

JBGREED 10,218
TPTONIC 1,800
QRACTIVE 1,300

13,318 |
TPTONIC and QRACTIVE (Radio Free Europe and Radio Liberty) were turned
over to the Department of State and are now being managed by the Board
of International Broadcasters. The JBGREED complex (air support

capability in the Far East) is in the process of liquidation and

HW 50955 Bocld:32423532 Page 27


- 23 -

currently has 63 employees. In addition to the proprietaries mentioned
above, the Agency managed 243 funding and payrolling mechanisms which
provided payrolling services for 149 employees.

HW 50955 Docld:32423532 Page 26

_ 7 24 ~

PROPRIETARY LIST
ATR SUPPORT

IUBETON Complex

The below four companies comprise an air support capabil-
ity for worldwide contingency use. The complex is based
in the Southeastern portion of the United States with cer-
tain commercial business operations overseas. -

1. TUCONTROL

A Florida corporation which acts as the holding company for
-the principal operating company in the complex (immediately below);
assets consist solely of stock in the principal operating company;
no employees.

2. IUBERYL

A Florida corporation’ hased in South Florida; a small air
service company which can be quickly expanded to meet Agency air:
Support requirements.

3. IUEPOCH

A Florida corporation which operates from.an airport in the
Southeastern United States; a wholly owned subsidiary of IUBERYL
(immediately above) which operates a fixed base aviation facility;
provides an alternative air support capability.

4, ITUPIECES

A Florida corporation based in Miami which acts as a purchas-
ing agent for aviation supplies for the activities of the complex;
can provide the same service for prospective Agency air support
activities; is a wholly-owned subsidiary of IUBERYL (above).


7 25 -

JBGREED Complex

The below five companies comprised an air support capabil-
ity in the Far East. All entities are in process of being
liquidated or sold. :

5. JBCRYING oo ee oo 4

A Delaware corporation with corporate offices in Washington,
D.C., which acts as the holding company for JBCHOKE, JBHEEDFUL,
and PROPRIETARY C (see below). |

6. JBCHOKE
: Lik ; :
A Delaware corporation whte® corporate offices in Washington,
0.C., which has terminated all flying services contracts. The com-
pany wil] be liquidated by sale or disposal of assets.

7. JBHEEDFUL

A Taiwan corporation with corporate offices in Taipei which
ceased flying operations in 1968 but has continued to provide
ticketing and other services on behalf of other affiliated com-
‘panies.

8. PROPRIETARY B

A Hong Kong corporation located in Hong Kong which provides
’ computerized accounting services for JBCHOKE.

9. PROPRIETARY C
A Thailand corporation located in Bangkok, Thailand which is
the custodian for JBCHOKE files pertaining to Thai employees and

contractual services in Thailand; will be dissolved when Thai law
no longer requires retention of these records.

- Cpnaa |
* FROM ° Single Entity

10. HBSANDTRAP

A Delaware corporation located at Washington National Airport
which has provided secure air support for Agency employees and clas-
sified pouches between Headquarters and other Agency facilities in


the United States; the company has accepted commercial charter
flights from non-Agency customers for income and cover purposes.

a

Media Publications

2 nr
‘ :

The below six companies comprise a worldwide book dis-
tribution and manuscript publishing activity,

lt. QRBLOND

A Liberian corporation with a representative (banker) in
Brussels which pays book distribution costs; funds are controlled
by members of the New York corporation (POPORTAL/300 - below) and
paid through this corporation to avoid some of the problems of
funding a domestic company in the total amount required to effect
project operations; no employees except for the Brussels repre-
sentative, who is paid on a fee basis.

=
f
a

12. QRBLUFF

‘A Liberian corporation which is used as attribution for
Agency funding to the above two proprietaries; no employees.

13. PDPORTAL/200
A German non-profit organization, located in Munich, which
acts as the home office of its Rome Branch and is also used as
. the ostensible source of all the Agency funding to other project

entities; no employees; maintains a branch, PDPORTAL/500, in.
Rome, Italy. |

14, PDPORTAL/100

A limited partnership located in London, England.

15. POPORTAL/400

A corporation located in Paris, France.

en)

1H

16. POPORTAL/300

A New York corporation Tocated in New York City.

RECTE FROM


“= 27 -

Single Entities
“17. TOMOSAIC

; A Delaware corporation based in London which provided an in-
ternational news feature service; the project also supported the
publication of books of propaganda value; the news feature service
has been discontinued and the corporation will soon be dissolved, —

18. AELEDGER

A French corporate entity located in Europe which publishes
a foreign-language weekly periodical, which is disseminated to
recipients in and out of Russia and contains articles on Soviet
and Bloc matters including a large amount of material prepared
covertly in the USSR by Soviet dissidents; the periodical
attempts to encourage and assist activities of moderate segments
of Soviet society. .

19, AEDYNAMIC

A New York corporation located in New York City which pub-
lishes periodicals and selected books for infiltration into the
Soviet Union and distribution to travelers and Soviets residing
outside the USSR; fosters regional nationalism within the USSR;
Supports a private organization of regional nationalities; supports
the AEDYNAMIC branch office in Munich, Germany. ;

20. QRMYSTIC

A sole proprietorship located in the Washington metropolitan
area owned ostensibly by an Agency employee whose journalistic
services are utilized in support of foreign operations.

Proprietary Management
LPPANDA Complex

The below three companies support a one man accounting
and management company in Europe which provides services
to other proprietary operations.

“faa

Dave
rAUn
NOV 6 1975 ey

CIA


oyesp28 -

Bae

21. LPREMEDY

A one man accounting and management company located in
Europe. ,

22, LPCLOUD

A dormant company at one time associated with the cover
of the individual now covered by LPREMEDY,

23. LPCHAIR/A

A New York company with no employees which serves as a
communication channel from Headquarters to LPREMEDY. ;

Single Entities |

24. LPHOCUS

A New York management and accounting company (three em-
Ployees)} which provides accounting and related financial man-
agement assistance to other proprietary organizations.

25. LPSUGAR

A Maryland management and accounting company (three employees)
which provides accounting and related services to other proprie-
tary organizations.

26. LPBERRY/B

A New York legal and accounting firm (three employees}
which provides Tegal and accounting services to other proprie-
tary organizations.

Insurance

MHMUTUAL Complex

The below 25 proprietaries comprise a clandestine support

mechanism which provides personal insurance coverages,

annuity coverages, and escrow account maintenance for agent .
: «> Pargonnel in a manner to preclude attribution to the United

a W

4

YO & 1915

TR a
a fe N

Ping re a Pgh pan Scie ;
Spe Sea ee aS


+ 29 -

—

States Government. The complex also underwrites. insurance

_risks of certain proprietary organizations and administers
the pension plans of these organizations. In addition, the
complex has been used to provide a limited amount of
support to other Agency operations -- specifically, the
acquisition of operational real estate and as a conduit for
the funding of selected foreign covert activities. Twelve
full-time employees are involved in the management of the
complex, with the assistance of three proprietary manage-
ment firms. All expenses except for the salaries of Govern-
ment employees assigned to the complex are paid from earned
income. The companies involved are:

cs

+

27. MHANVIL/A

An attorney at law operating as a sole proprietor in Washing-
ton, D.C.; he is the Agency manager of the insurance complex.

28. MHGRET

A Panamanian company which nrovides ownership for MHCROZE,
an investment proprietary, (see below) and owns an apartment in
Buenos Aires; no employees.

29. MHCROZE

A Panamanian company which serves as an investment vehicle
and a primary mechanism for the management of funds, no employees.

30. MHSLACK

A Delaware corporation which provides payroll cover for project
personnel and serves as an investment vehicle for funds; seven em-
ployees.

31. MHVOQDKA
A Bermuda company which is a reinsurance vehicle for all types
of casualty and property insurance for other Agency proprietaries

and directly issues death and disability, term life, annuity and -
other coverages for Agency non-staff.personnel; no employees,

32. MHORYAD-

A Panamanian company which serves as owner of MHLUMEN and
MHSPRAY, (see below}; no employees.

oY
NOV 6 19


33. MHLUMEN

_ A Liberian company which serves as owner of MHFETCH (see
below) and as the source of an operational Toan; no employees.

34. MHFETCH |

A Bahamian company which serves as owner of MHKOALA and
MHWHIFF (see below); an investment vehicle and manager of non-
staff pension plan; no employees. 4

35. MHKOALA .

. ° A Liberian company currently inactive and slated for dis-
solution; no employees.

36, MHWHIFF

A Bermuda company which is a reinsurance vehicle for all
types of casualty and property insurance for Agency proprietaries
and for life and annuity coverages for non-staff personnel; no
employees.

37. MHMOLAR

Liechtenstein anstalt which serves as the beneficial owner
of MHBOMBE (see below); no employees.

38. MHBOMBE

A Bahamian company which serves as a holding company for
MHTWANG and MHONSET (see. below) and as an investment vehicle;
no employees. Lo

39. MHONSET
A Delaware corporation which serves as an investment vehicle
and quarantor of a mortgage on a former Agency activity; no em-
_ ployees. .
40. MHTWANG
A Cayman Island corporation which handles certain annuities,

escrow, term life insurance, a pension plan and funding of MHPIQUE
{see below); no employees.

RECEH ane

ea

NOV 6 1gI5- ORE;


41. MHPIQUE

A Florida company which provides payroll cover for three
non-staff personnel who handle the Cuban dependents program
payments and correspondence; three employees. :

42,  MHDELFT

A Swiss company which serves as a holding company for MHHAWSE
(see below) and as a standby asset; no employees.

43. MHHAWSE

A-channel Island company that serves as a direct underwriter
of term life insurance and annuity contracts for non-staff Agency
personnel; no employees.

44, MHSEPOY

A Panamanian company that serves as beneficial owner of MHUNOER
(see below) and for direct underwriting of term life and annuities
for non-staff personnel; no employees.

45. MHUNDER

A Panamanian company which is slated for dissolution; no employees.

46. MHALATE

A Liechtenstein company which owns property in Lusaka; no

employees .

47. MHJORUM

A Panamanian company which directly underwrites death and
disability, term life and annuities for non-staff personnel, no
employees. ,

48. MHBLARE

A Florida company now in dissolution resulting from | abandon-
ment of Agency project; no employees.


NOV & 1975

49. MHRUCHE

A Liechtenstein anstalt which is a general use standby
asset; no employees.

50. MHCLUMP

A Liechtenstein anstalt which serves as a standby asset
for general reinsurance use; no employees.

51. BGJASMINE

A European insurance and reinsurance company which issued
direct death and disability coverage to contractor personnel en-
gaged for a DDS&T project, and reinsured other risks arising out
of the project; no employees. ;

Logistics Support

The below three entities operated by the Office of.
Logistics provide a covert procurement mechanism
for the Agency.

52. KMJAGGERY

A Delaware corporation located in Washington, D.C., which
purchases general merchandise in a manner which cannot be traced
to the United States Government; total purchases from. January to
September 1974 were $437,500; no outside commercial business; five
employees.

53. TPLENTIC

A Delaware corporation with an address in New York which
arranges research and development and production contracts in
a manner which cannot be traced to the United States Government;
the company has no employees and is managed by Headquarters
officials in alias. ;

20M -

(A OEE

ry Sey
“,

rae ager
IS Net FE tas

ar
; en eae ,

al


54. Stock Account #3

A Delaware corporation with an address in Baltimore which
purchases arms, ammunition, and police related equipment in a
manner which cannot be traced to the United States Government;
the company has no employees and is managed by Headquarters
officials in alias.

Cover Support
WUDIRK Complex .

The below five entities located in New York comprise a
Foreign Resources Division activity which provides com-
mercial cover for certain personne] assigned to the

New York Base of FR Division; no commercial activities
are undertaken by the companies in the complex, and all-
revenue comes from Agency sources; two of the entities
are in the process of dissolution, and two recently
established entities will replace the ones in dis-
solution.

55. WUBGDKIN

A New York corporation with offices in midtown Manhattan
which is styled as a management consulting firm; the entity
will be dissolved in the near future as soon as other cover
facilities are available for the individuals presently cover-.
ed by the entity; used by New York Base personnel for employ-
ment attribution and office space.

56. WUCURULE

A New York corporation with offices in mid-town Manhattan
which is styled as a management consulting firm; the entity wii]
be dissolved in the near future as soon as other coyer facil-
ities are ayailable for the individuals presently covered by

. the entity; used by New York Base personnel for employment
attribution and office space.

57, WUXIPHOID

A New York corporation with offices in mid-town. Manhattan
which is styled as a management consulting firm; the entity will
continue to provide cover support to the New York Base; used
by New Yark Base personnel for employment attribution and office

spacey

NOW 1975

oud. as
Passes te ae


“RECT?

58. WUBACH

A newly established New York corporation with offices in
mid~town Manhattan which is styled-as a management consulting
firm; was created to replace WUBODKIN and WUCURULE (above);
used by New York Base personnel for employment attribution
and office space,

59. WUKNOX

A newly established New York corporation with offices in
mid-town Manhattan which is styled as a management consulting
firm; was created to replace WUBODKIN and WUCURULE (above);
used by New York Base personnel for employment attribution

_and office space.

Single Entities

60. LPPIKE

A New York importing company with a branch office in a
Far East country; the branch office provides cover for -one
Agency employee; no employees in New York.

61. MOKITH

A Thai company located in Bangkok, Thailand, which functions
as a travel agency and provides cover for one Agency employee in
Bangkok.

62. LKBASE

A Virginia corporation located in Washington, 0.C., which,
in the past, has provided cover and funding for nonofficial cover
officers in the middle east; it is styled as a research organiza-
tion on energy matters and is now in the process of liquidation.

63. MKDILLY —

A Virginia corporation operating out of the residence of
its president in Northern Virginia; the company provides cover
for one Agency officer: who provides behavior psychology assistance
to the 500.

Lar aa) -EROM
. NOV 6 1975

UIA


= 35 -

Personnel Services

Single Entities

64. SLAVE

A Delaware corporation having its principal office in Falls
. Church, Virginia, which provided a centralized facility in the

Headquarters area with the capability of fulfilling field and
Headquarters requirements for tape transcription and document
translation; three employees; steps are now underway to convert
two of the employees who were proprietary hires to contract
employee status and move the function ta Agency controlled
buildings.

65. MHBOUND/3

A California corporation, with its headquarters in Los -
Angeles, which conducts personnel investigations for security
clearances/approvals. in those cases where no United States
Government interest can be disclosed. It also renders security
assistance, 1. @., badging, counter-audio inspections, etc., ta
Agency projects in those cases where United States Government
involvement cannot be revealed; the company will be dissolved
by 30 June 1976.

66. MHCLIMB

Represented as the Washington, D.C. branch office oF
affiliate of a legitimate New York based public accounting firm,
. but actually under sole control and administration of the Agency
Audit Staff, this facility enables site audits of Agency cavert
projects by experienced Agency auditors.

67. VWCADENZA

A Maryland company located in Bethesda, which its used. as
cover for an Agency employee who provides electoral and political
analysis on South American andEuropean elections; he also trains

Agency personnel in polling techniques and electoral analysis;
no outside business..

FROM

iv 6 STS

‘


-~ 36 -

Operational Support
WUTACTIC Complex

The below 27 companies are managed by the Cover and
Commercial Staff to provide operational support mechan-
isms for DDO foreign operations. Some companies are in-.
active and held for future use. , .

68. LPCEMENT

A Liechtenstein company used to purchase a condominum apart-
ment in France for use as a listening post; net assets $84,226;
no employees, being terminated in the near future.

69. LPKILT

. A Latin American company established to provide cover and
funds to an East Asian agent; agent exports goods to Latin America
for resale; gross sales last year of $1,000; assets $12,870; one
field agent. , uo

70. LPKNIT

A Florida corporation formed to provide cover and source of
livelihood to an Agency employee in Latin America; employee open-
ed branch office of this parent company and sells sporting goods;
‘gross sales last year (first year of operation) $3,367;. assets
$14,125; one employee and wife.

71. LPPURSUIT

A Liberian corporation used to backstop a field agent in the
renewal of his visa; assets of $375; no employees.

72. LPCAMEO

A Liberian corporation used as the ostensible employer of
two Agency employees in the recruitment of a foreign agent; no
assets no real employees.

73, LPMISSIVE

dP Y;JA Liechtenstein anstalt which holds a mortgage on property

my
‘Yn’ Austria used by a field agent; assets of $788; the mortgage

” Noy 6 1975 °S not recorded on the books of the corporation; no employees.


-~ 37 -

74, 1.PBANGO

A Liechtenstein foundation used to give ostensible grants-
in-aid to field agents as a source of their livelihood; asséts
of $165; no employees. -

75. LPABBEY

A Liechtenstein foundation presently inactive; assets
$3,202; no employees.

76. LPRITTY

A Liechtenstein foundation presently inactive; assets
$3,205; no employees.

77, LPALONE

A Liechtenstein foundation presently inactive; assets
$633; no employees.

78. LPOOUBLE

- A Liechtenstein company used as a funding channel for a cover
placement, assets $2,853; no employees. . ;

79. LPRAISIN
A Liechtenstein anstalt export/import firm formed to provide
_additional status and prestige to an employee operating in alias;
assets $7,942; no employees.
80. LPBRAID

A Panamanian company used as a note holder in- the sale of
_an Agency proprietary entity; assets $1, 818; no employees.

81. LPADYANCE

A Panamanian company currently inactive; assets $3,589; no
employees.


~ 38 -

oe

ECOL
Agha

82. LPGLITTER

- A Panamanian company which was used as an investment vehicle
for funds reserved for new commercial operations requiring Agency
investments; The investment project was terminated and all funds
returned to the Agency; the company. has no employees.

83. LPLOTUS

A Panamanian company currently inactive; assets of $2,831;
no employees.

84. LPVISION

A Panamanian company currently inactive; assets of $2,831;
no employees. .

85. LPRANGE

A Panamanian company which holds a note for certain United
States Government funds borrowed by a consortium of aluminum
companies for the extraction of bauxite. in Guinea; purpose of
United States Govenment involvement was to insure U.S. control
of bauxite extraction activities in Guinea; the note, issued .
in 1961, was in the principal amount of $2,855,000, balance
of $1,752,000 has remained uncollected since 1962, when payments
stopped, (at the time the Government of Guinea nationalized
the extraction effort); aside from the note, the company has no
other assets and has no employees.

' 86. LPSHADE
A Delaware company previously used as a holder of a note on
a loan to a field agent; company now inactive; assets of $2,829;
no employees. .

87. LPMANTLE

A Delaware corporation which is used to collect the proceeds
from the sale of Agency proprietary entities and to refund such
proceeds to the Agency; at 31 December 1973, total assets $650,220,
total liabilities $633,897, total stockholders equity $16,323; no
employees. i


- 39 - i

88. LPEPIC
A Delaware corporation based.in New York City with a branch
affice in the Far East which provides commercial cover to a con-

tract employee in the Far East targeted against foreign intelligence;
net assets $27,265; one employee.

89. LPSHORE

A Delaware corporation currently inactive but retained for
future use; net assets of $2,023; no employees.

90. LPRERUN

A Delaware company used to provide compensation and tax
attribution to an independent contractor, assets of $7,094; no
employees. -

91. LPGRASS

A Delaware company used as the ostensible investors of
funds in LPKILT; assets of $1,826; no employees.

92. LPSHUFFLE

A New York company incorporated but never opened for business;
being held in reserve for possible future use; no assets; no
employees.

93. LPDAIS

A New York corporation based in New York with a branch office
in Europe. Used as the ostensible employer of an Agency employee
during his tour in Europe targeted against foreign intelligence;
net assets $6,845; one employee.

94. LPDUPE -
A Massachusetts company incorporated to pravide cover and

source of livelihood to an Agency employee on a tour in the Near
East; assets of $9,647; one employee.

NOV & 1975


Miscellaneous

single Entities

95. CATAR

A. Liechtenstein corporation operated by a lawyer in
Europe which has been used as the lessee of apartments of
operational interest in two European cities; also used as the
ostensible employer of certain Agency employees in the Far
East_when they operate in alias; no real employees; funds
have been passed through the company bank account in. amounts
necessary to meet lease payments and maintain commercial
image; net worth of about $5,000 (represents minimum bank
balance); company now in the process of dissolution.

96. LPBYZAS/B

A Swiss entity which holds a current equity interest (30 °
percent) in a European trucking company; al] other owners of the
trucking company are unwitting of Agency interest and the Agency
has been trying to sell its equity since 1973; both entities
provided cover fora career associate for four years; when
sale is completed, LPBYZAS/B will. be dissolved and proceeds
returned to the Agency for credit to Miscellaneous Receipts.

*

97. LPESTATE ©

A Liechtenstein anstalt with no employees which owned a
house of operational interest in a European city; the house
was recently sold and the entity will be dissolved as soon as
the proceeds from the sale are received and the company can be
liquidated in accordance with the laws of Liechtenstein;
liquidating dividends will be returned to the Agency for credit
to Miscellaneous Receipts.

Po EROM

ClA SECRET | 4


SECRET

-~ 41 -

Employees* of Proprietaries as of October 30, 1975

TUBETON Complex

JBGREED Complex
HBSANDTRAP
PDPORTAL Complex
TOMOSAIC
AELEDGER
AEDYNAMIC

_ QRMYSTIC

LPPANDA Complex.
LPHOCUS

LPSUGAR
LPBERRY/B

“MHMUTUAL Complex

Logistic Support
Complex

WUDIRK Complex

LPPIKE

MOKITH

LKBASE

MKDILLY

SLAVE

MHBOUND/3

MHCLIMB

VWCADENZA

LPTACTIC Complex

CATAR

LPBYZAS/B

LPESTATE

Totals

* No Foreign National Agency employees are presently employed by

U.S.
Agency

Employees

OD mt GN et et Ot OOD OT

. Mm
OOD w— WN OO — Win

|

“dl
ce

Agency proprietaries.

AA

NOV 0 1975.

U.S.

Prop. Hire

116

—_
wd
_ |

oocoe --RMococTaced WMO COON OOO eG

3]
1

Foreign

Prop. Hires —

ire]

+ NG
~AOmDoTOaowoovouo~,

poo-cecescccss

[235
ro)

TAB B

Totals

120
63
6
19
0
21
10

ro _
OOO SPN PWS Ome wo POO OO OO at

—_

32]


TAB C
FUNDING AND PAYROLLING MECHANISMS

1. The various types of Funding and Payrolling Mechanisms used by

the Agency are described below:

a. Devised Facilities--Those Agency-owned and managed mechanisms
which are incorporated in U.S. jurisdictions (various States) with
nominee stockholders and are used to provide nonofficial cover pay-

‘roll support to Agency assets who do not have to show highly visible
cover employment. They are also used for other nonofficial cover
support tasks such as funding of proprietary organizations. No
books of account are maintained but annual tax returns are prepared
by Headquarters specialists in a manner to make it appear that the
mechanism is conducting normal commercial business. Since the tax
return cannot be substantiated from commercial records, the Internal
Revenue Service (IRS) must be notified of Agency interest in the
entity tn the event of a proposed IRS audit. Management, including
direct control of the corporate bank accounts, is effected by
‘specialists at Headquarters. Funds are transferred from Headquarters
to the bank account of each.entity in amounts and at times necessary
to meet funding obligations; otherwise, minimum balances are main-
tained in the accounts to keep them open.

b. Devised Facilities-Nctionals--Those Agency-owned and managed
mechanisms similar to Devised Facilities except that the mechanisms
are not incorporated; they are sole proprietorships. The same
administrative procedures are used as for Devised Facilities.

c. Notionals--Those Agency-owned and managed mechanisms which
are merely business names (not formally constituted or registered)
which ostensibly do business at the address of an answering service
or witting attorney. Operating officials are usually fictitious
and management is effected by specialists at Headquarters. These
entities are generally used as funding attribution for monies paid
to bona fide corporations in reimbursement of cover costs for Agency
assets, and they are also used to fund proprietary organizations.

The same administrative procedures are used as for Devised Facilities.

2. As of 31 October 1975, the number of mechanisms in each category

is as follows:

a. Devised Facilities ns
b. Devised Facilities- Notionals 67
c. ‘Notionals 228
A - Total 326
rel
2 Ma
iar epee T
Sbunel
KK . /

SFE eT
: eae
Saas

[
tee
{

!

!

|

{ .
7

|

|

2 Y

mT

¥
is
at


MAJOR HEADQUARTERS-CONFROLLED

7 ~ - 43 - ~ AIT ;

* ‘ DESCRiIYTIONS GF “
’ so PROPRIETAREES FOUND ON THE SCHEDULE ATTACHE i i
TO A 28 SEPTENZER 1975 MEMORANDUM TO THE Jl.
COMPTROLLER FROM THE OFFICE OF FINANCE i
LPBERRY/B - A one man, one secretary accounting and

egal firm in New York City which pro-
vides services to Agency proprietary
clients as well as commercial customers,
The majority of the costs of this sro-
prietary are usually subsidized by the
Agency, however, during the past 12-
month period the oroorietary did earn
. ; suostantial fees from legal clients in-
cluding a $20,000 fee which was cangingent
_ upon the favorable settlement of a civil
case, .

—y

+
oi
é

LPPIKE - A small importing firm in New York City
which pravides cover for ona Agency of-
Yicer in the Far East. In the past, the
company nas earned substantial revenue,
however, in recent months and for the
next year it is expected that the company
will be subsidized completely by the
Agancy.

‘
\
cd

PDPORTAL - A complex of companias bath in the U.S.
‘ and abroad which comorise a worldwide
book distribution and manuscript pub-
lisning activity. Except for 34,000 to
$5,000 a year from outside sources, all
_ proprietaries in this complex are sub-
sidized completely by the Agency.

=

small company in Europa which publishes

PDLEDCER - 1
weekly oariodical and disseminates this

[i

and other material te recipients in and. :
aut OF Russia; the various written materials
produced for dissemination by the company
contain Soviet dissident literature and
ther articles to encourese-and assist
acvivittes of wederate segmants of Soviet
sociaty. This company receives outside
revenua from tne sale of its publications
and over tne past 12 montns this revenue -
contriouted to approximately One-half of
the costs. The balance ifs, provided (by) MA
tne Agency. . PIUTVE
NOV 4 1975
i


no

PDDYNAHIC

VWCADENZA

MHBOUND

KMJAGGERY _

‘QRMYSTIC

WUDIRK

L?HOCUS

ot te as

- 44 -

A domestic based corporation with a German
branch which fosters the aims of a nation-
alistic group within the USSR and publishes
Selected books and periodicals for distri-
bution to members of this nationalistic
group. The New York and German offices
under this project are largely subsidized:
by the Agency with some revanue to the .
German office from the sale of publica-
tions. os

A one man, one secretary, consulting
company which provides Agency officers

with training and advice on polling tech-
niques as applicable to foreign Operations. |
This company is wholly subsidized by the
Agency. , : os

-MHBQUND/3, a security services company: ~~
which supports Agency, programs involving
contractor personnel and offers limited
Services ta commercial customers for
cover purposes. This company is almost
completely subsidized by the Agency.

A small purchasing company operated by
the Agency, Office of Logistics, which
provides covert procurement for that
office, This company is wholly subsi-
dized by. the Agency.

A sole proprietorship in the Washington

- area ostensibly owned by an Agency employee ©

wnose writing and rasearch talents are
utilized exclusively by the Agency in
support of overseas oparations. This
company is wholly subsidized by the Agency:

A grous of three comcanies in New Yurk
wnich provide cover for personnel assigned
to FR Oivision's New York Base. The

three companies involved are supported
wholly by the Agancy.

& two accountant, one secretary firm in
wen York City which provides accounting
services for Agency Proprietary organiza--.
tions. This company is supported almost
exclusively by the Agency.

Ke ROM

NOV 4 1915


A teropean company with no employees Ha

Which holds the Agancy’s interest in

, another European company which was used
in the past tg Provida covar for one :
Agency employee. This company is being
retained solely for the Purpose of halding
an Agency investment. Until this invest-
ment 78 sold, the expenses incident to
the operation of the, company will be
wholly subsidized by the Agency.

i

LPBYZAS/

iva)
i

oO)

LPPANDA ~ One company in New York without employees -
and a ona accountant, part-time secretary
firm in Europe which provides ‘accounting
Support to Agency proprietary organizations.
Ss This company is almost exclusively sub-
. Sidized by the Agency. oe

MHMUTUAL - This is the Agency insurance complex which,
through interest and dividends earned on
its investment. portfol ia, pays for al]
Project expenses except for funds provided
by the Agency to meet the salary costs
of staff and contract employees in the
complex. ;

LPSUGAR - A two accountant, one Secretary firm in
; the Washington area which provides ac-
counting services to other Agency pro-
prietary organizations. This company is
almost completely subsidized by the Agency.


PROJECT /
ENTITY

ABUNA (Same as JBCASHBOX)

AEEGGHEAD
AcMARSH
AEMIRROR
AEDOKER
eens

AEWILDFIRE ©
AESILVER/D
AKAROA
AMIDEA .

BEDEVIL
BEHOVE
BEUTFUL
Bey, £0
SGUAGUAR
BGMARQUE
BGSPEED
SGTENTS
BGTHANKS

CABANA
CALANCET
CAPOX

De TNDEED
DQEMARA
DTCRAZE
DTLAMPREY
BYLIQUOR
OTPRENYL
OTPIGGLE
DTPILLAR
DITEEPEE
DUPLICITY/1

1952-1974

LISTING GF PROPRIETARIES
DURING THE PERIOD
1952 THROUGH 1974

(fotal 399)

HIGHEST NET

" EQUITY BALANCE

ON “NET WORTH
AGENCY RECORDS BALANCE

§ 98,000 $
65,000
1,414

147 ,Q00
275,000

214,000
141 ,000
3,200
291,000
59,400 84,400
3,500,000
2,200
13,500.
88,200

17,000
29,000
64,800

2,829,000
333,009
85,000
264,500
4,600
189,500
38 ,500
7,123,609
117,400
39,030

31 DEC 74

RE 3 PROM
NOV 4 1975

CIA

HIGHEST NET
EQUITY BALANCE
i

0
PROJECT/ AGENCY RECORDS ©
ENTITY 1952-1974

ENDOMORPH $

ENGAGE 202,080
FELIX 6,200
FICITIES 33,000
FJREFLECT 7,959,900
FJHOLIDAY - 77 684
FUSTRICT 304,600
FUARROW ; 29,000
FURTOSO/H - ; 22,080
FUSEE 25,000
_GINSENG/G (was GIMMICK): 31,000
HACKMORE - 600
HALARC 9,660
HBDERRICK (was WU) (same as

HBCLUBHOUSE GILSTOHE) 917,543

HBSANDTRAP 7,163,099
HREDITOME 546,200
He .CKORY 142,559
HBQUAIL : 2,763
Housing Fund ISOLaTion] 16,620
HTB ALARD 14,200 |
HTGARLIC 203 ,300
HTNAMASLE 2,066,000
HTPENULT 7,000
ICIRON. 2,609
TUATREDALE 89, Cag
IUQUEST .

TUABATE 3,484,059

TUPAGAN 3,332,060

IUPROTON (*} 1,230,600
JBFOLDAGE Te _ 43,600
JBGREED 34,110,000

LPCRYING

JBCHOKE

-JBARGON

(*) See attached schedule. f3r non-government investments.

'(4) fa process of liquidation

NET WORTH
BALANCE
31 DEC 74

— §,300(a) .

3,484,000(a)

889, 000(a)
7 ,220(a)

31,778 ,000(a)

ode
pimienegnee ey

OPT ry r
Ree FROM
NOV a 1975

CIA


” ~~ 48 -
MPMS PTLD
SEMSTTVE
HIGHEST NET
EQUITY BALANCE
ON NET WORTH,
PROJECT / AGENCY RECORDS BALANCE
ENTITY 1952-1974 31 DEC 74 |
JBGREED (continued) $ $
JBHEEOFUL
PROP B.
PROP C
JBOPOSONIC 3,500
JBWHIST 205,000
OMATE |
JMBUST 512,000
IMHOPE 45,000
JMPOPLAR 61,400
KMHELMSMAN. 19,400
KMARDISH 8,200
KMCARDUEL 20,000
KMCASADE 49,600
KNJAGUARO 1,688,000
KMFERRY 4,000
KMJAGGERY - 294,700 ©
MHOLENT 17,C00
Ss” STOCK ACCT. #2 4,105,090
Se. STOCK ACCT. #3 50,060
TPLENITIC 153,560
KMOCHRIOD 50,500
KMPRICE - 147,000-
“MSMORCH 8,300
LAGYCHAPEL 223,000
LCFURTHER 34,800
LOKNIFE 335,300
LCPEDANT 59,800
LCROPES 317,000
LFUPRISE .
MIASTOR 29,060
LILISP/G 121,700
LIMERRY : 129,090
LPBERRY (vas BGLEADYWAY) © 41,600
LPBERRY/A 65,090
LEBERRY/B 52,000 53,200 REC: co
LPBYZAS/A 87 08 340(a) Eoie  f ag
LEBYZAS/B 357 ,000 357,000 OY
. . NOV 4 1975
: ces Liquidation. ,
fa) In precess of liquidat CLA

REESE en
angie eee ee


HIGHEST NET
EQUITY BALANCE
ON NET WORTH
PROJECT/ - AGENCY RECORDS BALANCE
ENTITY 1952-1974 DEC 74
LPCAPTAIN § 20,000 ;
LPCANAL 34,800 2,000{a)
LPDICTUM(was ZRSALTY,{same as 500,000
WUBRINY) ZRSALTY)
» LPDICTUM/F 931,900
LPESTATE 87,c00 ~ 84,400
LPSPICE (*) 206,000 - "10,500(a)
LPDICTUM/P 75,600
* LPSALINE (*) 1,597,000
LPETHNIC (Same as WUAMICE)
LPCYHAMMER B00
LPHALTER 67,000
_MODAISY . 5,400
LPTOTEM — 242,000 81,200{a)
LPFUNNEL 1,500
LPGAMP 27 000
LPGLOBE 29,000
LPHOCUS(same as WUHOCUS) 88,000 35,700
LPUJACK {*) 49,c00 . 54,400(a) _
LPMINERAL
1 CAEL 52,000
Lr UHICKEN 13,6C0
LPMINOR * L 7
-LPMINOR/1 523,020 |
“LPMINOR/G 91,690
LPMETAL - 166,600 47 ,800(a)}
PULSE 9,000
“WUAALTBUT 311,100
LpBANDA(same as ZRBADGE)
CHAIR A(same as WUPSYCH! 1. 77,500 1,900
CHAL® B WUCHAIB/A & MUCHAIR/3B)- 7,50! ;
LPCLOUD{same as WUCLOUD} 5,960
LPMET (*) 16,290 16,200
LPREMEDY 34 G08 27 400
LPRECLAIM
LPPITCH 58,000
LPROE/
LPPIKE - 73,765 56,200
LPSIPHON 12,560
LPSUGAR 55,600 35,600
LPTACTIC
LPABBEY 5509 4,300
_LPACROSS 1,700

(*) See attached schedule

(a) In process of liquidation


PROJECT/
ENTITY

LPTACITC (continued) ©

LPABOUT.
LPACTION
t, LPADVANCE
LPALONE
LPASSIST

LPBAIL
LPBANJO
LPBEAVER
LPBRAIO
LPBRICK
LPCAMEO
-_ LPCAREFREE
" LPCEMENT
LPCHANNEL
_ LPCHAGS
LPDAIS
LPDARE
LPDECOR
| SDOLLOP
JOUBLE
LPDRAGUN
LPDUPE
LPELECT
LPEPIC
LPF INAL
LPFLASH
- LPGAMP
LPGRASS
LPGLITTER (*)
LP IMPORT
LPKAYO
LPRILT
LPXITTY
LPKIVA
LPKHIT
LPLAZY
LPLOTUS
LPMANTLE (*)
LPMASSIVE
- LPORDER
_ WUOUTDONE
 LPOXAZOLE

HIGHEST NET
EQUITY BALANCE
on _ NET WORTH

AGENCY RECORDS BALANCE
1952-1972.

1,000
4,300
20,000 3,600
6,000 400
2,900
17,400
7,900 , 1,200
2,200 ;
2,200 1,800
4,280
2,000 —
16,090 _
64,000 86,200
» §00
2,500
31,000 20,500
21,000
98,706
3,000
4,700 2,800
19,000 3,600
1,300
49,000 6,600
1,160
107,800
15,400 _
2,600 |. 2,400
1,418 ,56 132,000
1,160
760

40,600 : 7 800.

7,086 2,590
.6,690
12,200 14,800
55,090. - ' .
3,796 2,400
591,090 37 ,800

2,609 | 1,809

68,590
15,090
5,109

(*) See attached schedule,

31 DEC 74

FROM
au 4 15 .

GLA.


PROJECT/
~ ENTITY

LPTACTIC (continued)

- OF
ere)
aa ta)
HIGHEST NET
EQUITY BALANCE

ON

AGENCY RECORDS
1952-1974

LPPITCH 28,200
LPPURSUIT 2,100
LPRAISON 8,000
LPRANGE 750,000
LPRERUN 5,000
LPRIVER 4,000
LPROCKY - 1,700
WUSENOR 2,700
LPSERVICE 4,400
» LPSHADE 47,000
LPSHOFFLE 60
LPSHORE 6,700
LPSOLO 398 ,000
LPSUMMIT 5,500
-LPVISION 3,800
LPWAMPUM 40,000
- LPWEARY - 4,460
LPWHISPER(ame a LPCAPTAINAP! NHISFERQ? 900
LPL TY/] 500
LPWANDER 5,0C0
LUMINANT 12,800
MENNONITE 1,200
MHAMISH 38,000
PHANVIL/A 28,009
MHANVIL/B 2,709
MHANVIL/B 3,300
MHANVIL/F 2,400
MHANYIL/G 2,000
MHBQUND/1 (same as ZRLINEN) 135,990
MHBOUND/2 28,000
“HBOUND/3 351,600
MHCLIMB 46,000
MHMUTUAL
MHALATE (*) 165,900
MHBOMBE (*) 2,251,000
WUCAREFUL (*) 29,900
WUCHILI (*) £9 ,0590
HHCLUMP (*) 75,590
MHCROZE (*) 2,026,850
. MOET (*) 9,250
MADRYAD (*) 62,030

(*) See attached schedule

NET WORTH
BALANCE

31 DEC 74

2,500
5,900
14,000
5,900

2,400

1,900
1,800

"2,800

£94,400
20,000

- 103,600
873,335

&1,400
1100 200
9,300

&6 , 300

REGi

NOV 4 1975

CIA


HIGHEST NET

EQUITY BALANCE

PROJECT/
ENTITY

MHMUTUAL (continued)
MHEGRET (*)
WUFACET (*)
MHFETCH (*)
MHHAWSE: (+)
MHJORUM (*}
MHKEVEL (3
MHKOALA (*)
MHLIBERTY (*)
MHLITRE (*)
MHLUMEN (*

(MHMATTE (*
MHMOLAR .(*
MHNAVAL (*
MHONSET (*
MHPIQUE (*
WUPRUDENT

* WUSAFETY
MHSEPOY (
MHSLACK (*
THANG {
roUNDER (

MHVODKA

)
)
)
)
)
)

*)
(*)

s
)
)
)
)
)

MHWALFF
HINERVE
MHEUGUE
HHSHANK
MIASTOR
MICLINIC
MIPACT
MEHOLOUNG
MIPUSHER
NKCOTTON
MCRUSH
MAKILLY
HKPENNY (same a as IKPENNY)
BMOKITH
HOMARRON
MONITION

(*) See attached schedule.

ON
NCY RECORDS

“oe 1974

'$ 35,000
1,123,000
1,261,600

48 ,600
475,000
357,000
250,000
4,400
1,690
59,000
49,00
850
26,800
126,900
28 500
1,025,690
412,799
18,000
691,500
638 ,900
33,500
7,053,500
8,385 ,G00

325,500

244,000
34,700
"2,500
21,25
37,000

459,000

35,500
356 ,020
20,200
51,700
52,600 .

$

NET WORTH

BALANCE

31 DEC 74

33,800

(363,500)

8

54,600
141,500

211,200

35,560 .
550

199,000
15,900

(6,100)
574 ,800
648 ,500

"(590)

»230,000

6,361 ,000

-17,600(a)7 (8)

6,000
82 ,000(a)
20,300

(a) in process of liquidation.
(bo) Liquidation completed in March 1975,

RECEIES epaR

Py
NOV « 1975

CLA

M


ORGLAD

HIGHEST NET
EQUITY BALANCE
ON

PROJECT/ AGENCY RECORDS
ENTITY. 1952-1974

NOVEL $ 51,200
NTEICACER 80,763
OBLIVIOUS . 14,606
OKMAJOR 471,000
OKSALE 46,600
OQKADIAK 92 ,800
OQKAIL 170,150
PAFANFARE(sama as FANFARE) 30,300
PARABASIS : 39,000
PAWALRUS (was WU) 92 ,800
PBGREGALE * 47 ,800
PBTEMPLE °§,000
POBASIC 7,053,500

PDBASIC/200

PDBASIC/100 ~

POBASIC/400

PDBASIC/300
PEt CTO 13,0C0
POLS 25,900
PODEARLY 32,890
POVARSITY

POSPOKE(same as POVARSITY} 31,900
PBPOUTER 7 36,/00
PSLAWFUL 17,060
QKACTIVE —§,500,000
QGKBOTTOM 4,179
CRFEARFUL 235,550
_OKHUMME 5 50
QKOPERA ] ,605 ,469
QKSHOGUN 2i ,G00
QRBASTE 533,000

QRBLAZE

QRBLOND

_ORBLUFF
QRBEND 229,559
QRBIBB - 102,590
ORBUZZ 12,990
ORDYNAMIC{same as AEDYNAMIC) 151,550
_ QRTENURE . 89,200

QRTERRACE 49,700

16,790

(*) See attached schedule,

HET WORTH
BALANCE

465,800

18,000(a)

"389,400

REC’ FROM
yoy a 1

Chk

:
i
H
t
1
H
{
i
i

HIGHEST NET

EQUITY BALANCE

N

PROJECT/ AGENCY RECORDS
_ ENTITY . 1952-1374

QRLEDGER § 165,500
QRMASTER 538 ,600
QRMOSAIC

QRHAWKBIT 106,000
QRMYSTIC

QRCYNIC 9,200
QRTRIG 100
QRTROW (*) 775,706
RIPCORD 200 ,Ca0
RIPSNOTER 457,390
ROCKOIL 3,879,000
RONDURE - 29,500
SEASONAL 39,990
SERING 70,500
SGSUMMON 62,100
SILVER/A 1,250
STPUZZLE 32,009
SL. 35,000
SOPRANO 16,020
SORTIE 16,606
STFANWEED 28 ,000
STSKI 11,600
TENACIOUS 21,690
TETARCH 243 ,800
TGVIVID 23,700
THAOMERE 42,000
THOPUS 23,58
TPFOCUS 1,764,000
TPFOUMART 97,500 ©
TPGLARE 525,050
TPGULLET 79,050
TPHERSEY 326,790
TPMANJACK 62,690
JPPELLENT 635,000
TPSAUCER 216,000
TETONIC(same as FJINOULGS) 34,260,000
TURBINE _ 17,830
TUXEDO . 26,090

(a) in process of liquidation.

LSepnde maieas dba re

ae

$

MET WORTH
BALANCE

3) DEC 74

91,400

94 ,500(a)
2,700

4,900

NOV 4 1975

CIA

HIGHEST NET
EQUITY BALANCE |

. ON NeT WORTH
PROJECT/ AGENCY RECORDS ’ BALANCE i
EQUITY 1952-1974 31 DEC 74
UNAU . § 6,000 ‘$
UNTWIG : : . 1,200.
UT-00-67-61 69,600
VWCADENZA . . 12,200 2,600
WSFLUFFER ; 291 ,000
WSPELICAN 34,900
WSREVOLT 14,900
WSWATERSOAK 6,000
WSWIDDER : 32,700
WUADIOS . ‘
WUTABOO 243 ,400
WUAMPLE’
WUCOTTON 2/ ,000
WUATLAS-
' WUPESKY 192,000
WUAYVON 546,600
WUE JN
TUBERYL 723,700 ;
TUCONTROL > 70,000 1,700
TUEPOCH |. 72,290 72,200
UTUPECES _ 28 ,000 ; 28 000
LOBSTER 53,000
WUSETTLE 11,200
WUBEVY (same as ZRGUIDE) 262 ,800
WUCLOAK (same as ZRCLOAK)
WUABOUT 8,000 |
WUACROSS 1,437
hUnARoy 100,000
WUHARP : 210,000
WUEUTD(was WUSHINE) ; 815,700 (same as _HUSHENE/NUHUMID)
WUMANTLE 687 ,000
SCRet 8,200
HUSEAS IDE (ane asHUSHINEMUSEA DEMO, 090°
WUSNAPPY . -7,100
WUWAMPLUM (sma as WUEMBARK/ 1,315,000
nUODTREK WUWAMPUM } :
WUBODKIN 02,500 50,100{a} a _
-WUCRULE(are & WUDIRK/* USTILETTOBT. 000 112,500{a) : a M
WUXTPHOTO ~~ 47,300 41,300 ; : {
(a) In process of liquidation, -_ RoW Rye

7


£
SEGRE
Arye ai .
SENSE 56 -
HIGHEST BET .
EQuiTy BALANCE
a 0} NET WORTH
pposect/ AGENCY RECORDS BALANCE |
equity 1952-1914 31 pec 24
A uenBAnt
| WOHALFLIN 5 250,000 S
4 WUENTREE g 509 .
WUMOREL 25,500 r
UF ILET (sam° as pBLANGUIO) 1,537 000 :
WUFLOWER :
uPROOF 4g ,000 \
YUSWAMP 62 ,600
WUGAZELLE
yUBLONGUN 365,708
WUGLRAFFE 439 700
WUZERU 952 ,900
WUHELPFUL 16,600
WuMuG 53,409
WUPADOY
WYACROSS 42,000
WUORDER 450
1. WUTROUBLE 396 ,000
iUPANEL
yuCORAL 556,900
WUPEACE 351,700
VUPiGhy —
yUSNaPry 375 ,000
WuPTLOT ‘
WUTWINE 450,400
uURABBIT
(UDOLPRIN 44,000
. WUSAUTE 77,000
2 WUSARA 983 ,008
WUACUTE 45 500
» yg ine sare as TASK) a
yOCONET ; Lo, 1 200,000
USHINE 7,284 0
. WU TWVEST 325 40
WUNOTECE 149,0
wUPUMA . (91,00 etre
 _ wuREMEL 261,09 Reo a EROM
wusolt (seme as 1RSOLLD) 972 200
: Wu S 1G °
_UTRADE 460,00 xov 4 1875
| yUSTAGE a
ai WUSUNTAN U | A
UF LANE
@: 32423532

ata bei

Senne


“HIGHEST NET
EQUITY BALANCE
ON _ NET WORTH

ST

-PROJECT/ AGENCY RECORDS . BALANCE
- ENTITY 1952-1974 31 DEC: 74
WUVENTURE :
LPARCH (same as LPARCH) § 69,000 g
WUABLE *- 209,000
WUBAKER 3,000
YUPASTIES 2,300 2,300(a}
YOBLADE 636,000
yoboor 285,000
YOENTITY 82,000
YOTART 755,000
YOYARD ~ 285,700
YOQFLUENT 356,000
YQFLUX 33,000 -
ZRBENCH "718,000
ZRCREST
ZRAVAST 72,000
: LIFF 4,277,006
ZRDAMSEL 100,000
ZRORTVE 57,500
ZRDROVE 217,000
ZRMORBID.
MORGLAY 12,000
ZROCCUR 59,000
ZRTINDER ;
ARCORCNA 845,000
THE FOLLOWING ARE GN CCS NON OP LIST
(NOT INCLUDED [N ABOVE “OFYLISTING)
CATAR
LYBASE - These proprietaries are not on Headquarters,
MUMUTUAL Office of Finance records; hence no net worth
MHBLARE fiqure was pr2zsented. CCS estimates that no
MHRUCHE one of these companies had a net worth of over
UHSPRAY $50,000 during their existance.

PROPRIETARY D

SLOGAN

(a) In process of liquidation,

R

ia

WWOV 4 Ws

CLA


~ 59 .

V. THE DISPOSAL OF AGENCY PROPRIETARIES -

a) An Overview

The Agency has emphasized the degree to which the extensive
proprietary system it has maintained in the past has been disposed
ef in recent years. Indeed, according to the current Chief of the
Cover and Commercial Staff, at least in so far as large proprietaries
are concerned, “because of multitudinous reasons they will be viewed
as the solution of last resort."* Size was a problem and made it
"inevitable that cover would not last.'"" Moreover, there simply is
not a need, according to the Agency, for the kind of capabilities
supplied by an Air America either now or in the foreseeable future.
In this regard, the Agency has indicated that no "real proprietaries"
are in planning because there are no such operational requirements
before the Cover and Commercial Staff (hereafter "CCS™) But the

Committee has learned from its study that the Agency retains the

* As William E. Nelson, Deputy Director of Operations, noted recently
to the Rockefeller Commission:

I think by and large that the day of the big proprietary
is over. We have attempted over the past few years to
try to squeeze down on those kinds of proprietaries and
I think we have really gone now to a fairly small mumber,
and a fairly tightly controlled group of proprietaries
who are doing legitimate operational jobs, particularly
in the media field.

Our experience with proprietaries in the past has been
Lf left by themselves, they tend to absorb larger and
larger amounts of government money and are not particu-
larly for a business. They. are not very viable in the
business sense and quickly become suspect as not having
any commercial validity. And we have, I think in the
past ten years, we have in this past ten years gotten
rid of an enormous number of proprietaries in this field.
I don't foresee us getting in the immediate future into
any expansion of that proprietary record. I think we
are about right in terms of where we are now.

HW 50955 Dockd:324234532 Page 63

- 60 -

capability “in being" to create even large proprietaries.* More-
over, numerous "shelf" corporations are kept available to provide
cover. These latter entities are generally only of the notional
variety and pose no threat either competitively or in terms of
domestic activity beyond the Agency's charter. Nonetheless, the
Agency has emphasized the need to retain this general vehicle for
at least one purpose: to retain assets. The CCS has indicated
that a method is needed to keep “good men" who are loyal, but who
need continuing work in both their ordinary and also somewhat
byzantine fields. Consequently, proprietaries offer a viable alter-
native to solve this dilemma of maintaining assets. _

As a result of this, the Committee studied which proprietaries
had been sold or otherwise disposed of during the period from 1965
to 1975.. It sought to find out which of those proprietaries so dis-
posed of in the last ten years maintained a significant relationship
with the Agency by contract or informal understanding for any purpose.
More specifically, the Committee sought answers to the following
questions: .

(1) How many proprietaries, by type or function, have been

dissolved or sold as a going enterprise or otherwise
disposed of by the Agency?

* Mr. Nelson closed his recent testimony with a caveat:

I can visualize, however, depending on what happens to
the Agency in the future, the possibility that we might
want to use more proprietaries, particularly in the
field of cover if this gets terribly tight or terribly
difficult. But the average operational purpose, except
for some of these media operations, all we need is cover
and I think that most of the proprietaries that we have
fall into that category.

BW 50955 DBocld: 32423532 Page 64

-~ 61 -

na

(2) How many proprietaries have been sold, or their assets
sold, to persons, or a group including persons, who
had previously served as directors, officers or
employees of the proprietaries?

(3) In how many instances were proprietaries sold pursuant
to -a written agreement, or an unwritten agreement or

understanding, that the purchased proprietary, any
successor entity or the parties purchasing the proprie-
tary's assets would provide the Agency with goods, ‘
services or other assistance? In each case, indicate
the nature of the business involved, whether the agree-
ment was written or, if unwritten, the way it is
reflected in Agency files, and the amounts of any
specific business volume, retainers or financial support
agreed to in connection with the proprietary's transfer.
This request covers both firm contracts for the provision
of goods and services and general agreements that the
parties acquiring the proprietary or its assets would
provide them, at the Agency's option, if requested to
do so. .

(4) In how many instances did the parties acquiring the
proprietary in fact subsequently provide goods, services
or other assistance to the Agency, whether or not there
was a written or informal agreement of such a relation-
ship at the time the proprietary or its assets were
acquired from the Agency? Indicate for each instance
the nature of the business, the dollar amounts of the
transactions involved and the period of years during
which they occurred.

Our study revealed that during the indicated period 209 proprie-—
taries were dissolved, sold or otherwise disposed of, thus substan-
tiating the Agency's claim that it had moved decisively to extricate
itself from this area of activity.* But in a very real sense it is
nearly impossible to evaluate whether a "link" still exists between

the Agency and a former asset related to a proprietary because

* The Agency's Office of Finance originally compiled a list of 305
eryptonyms of "entities" which were dropped from Office of Finance
records at Headquarters during the period 1965-1975. Nineteen (19)
other entities were added from other Agency divisions. Later this
list was reconciled with other Agency records to eliminate cryptonym
changes and other administrative actions not related to the actual
disposal of a proprietary organization. Ultimately, these admini-
strative “eliminations” totaled 115.
HY 50955 DBocld:32423532 Page 65

- 62 -

circumstances can be conceived of whereby even though formal and
informal Agency ties are discontinued, social and other ties remain.
The impact of such liaisons is difficult to assess. The following

entities were dissolved during the referenced period:

BW 50955 Bocld: 32423532 Page 66

f

ENTITIES DISSOLVED
we LEQ ULVED

AIR SUPPORT

WUSOL ID/WUTRADE
WUSOLID/WUTOPSY
WUDERRICK/WUCLUBHOUSE
WUCLOAK/WUOCEAN
WUCLOAK/WUSEAS IDE
WUCLOAK/WUSNAPPY
IUQUEST/IUPROTON
WUBETON/WUGLOBAL
WUBETON/WUAISLE
AUSHINE/WUINVEST
WUSHINE /WUREBEL
WUGAZELLE/WUEASEL
WUGAZELLE/WUGIRAFFE
WUPADDY /WUTROUBLE

MARITIME SUPPORT
weet UT

YOENTITY/YODGOR
YOENTITY/YOMONEY
YOTART

TUMUG
TUHISTEP/TULAPEL
TUHISTEP/IULATCH

OPERATIONAL SUPPORT
wee YNAL SUPPORT.

LPTACTIC/LPDECOR
WUTACTIC/WUDARE
LPTACTIC/LPDRAGON
LPTACTIC/WUELECT
LPTACTIC/LPFINAL
WUTACTIC/WUFLOOD
WUTACTIC/WUGAMP
LPTACTIC/LPHUMID
WUTACTIC/WUIMPORT
WUTACTIC/WUKIWA
WUTACTIC/NERVE
LPTACTIC/LPPITCH
WUTACTIC/HWUROCKY
WUTACTIC/WUSUMMIT
_ WUTACTIC/LPWAMPUM

LPTACTIC/LPWHISPER
LPTACTIC/LPORHED

ma
SUE

Moa eae
wie Li
b

AN ie ina See mate ee

a a5-— hn et ee
HY 90955__Docld:32423532" Pager MAREN RO
MMT Hey ey EE

TAB A

pee

es ete Te

TAB A
Page 2

(OPERATIONAL SUPPORT - Cont'd) Ji.

WUTACTIC/WUABOQUT =

LPTACTIC/LPACROSS .
WUTACTIC/WUBAIL

LPTACTIC/LPCAREFREE

WUTACTIC/WUCKAQS

COVER SUPPORT

STLARGO
STHMOD ;
STLAD ~~
STUPLIFT/STKNAP
STUPLIFT/STPACER
MIPACT/MIHOLDING
HALARC
MIPACT/MOPUSHER
CYTABARD ;
WUDTRK/WUCURULE
WUDIRK/WUBODKIN ;
WUENTREE/WUMOREL _
WUPANEL/WUCORAL
WUPTLOT/WUTWINE
LPBYZAS/A

WUBRINY /WUTROCHUS
LPDICTUM/F
LPDICTUIM/P
LPHINERAL/LPCHICKEN
LPARCH/LPOUCAT
WUATLAS/GIBLUFF ~—

we

ACCOUNTING & MANAGEMENT

QUBUZZ

MHAMI SH
LPPANDA/LPCHAIR/8
LPBERRY/A
WUSUNTAN/WOFLAME
WUSUGAR/B

INSURANCE

MHANVIL/B feareas

MHANVIL/D rs
pe ~ MHANVIL/F - fe
Ri Pe Pare MHSPRAY mt

vee _ MHKEVEL . —
. MHNAVAL :

eae
Bila eed

\w

Ps et a
Pony Paces eee
gt ey Sue a ree Sot
- neal ae af * sy a


TAB A
Page 3

COVERT PROCUREMENT . moat

WUMINOR/ I main,
WUMINOR/WUHAL IBUT “
LPMINOR/LPMETAL
WUMINOR/PULSE
IUALREDALE/IUOASIS

FOUNDATION OR INSTITUTE

AEWILDFIRE
LPUNITY/1

MEDIA

UOACORN/VOACTOR
FUSEE

YOYARD
TOMOSAIC/TOHAWKBIT

COMMUNITY DEVELOPMENT
WUETHNIC/MODAISY
WUETHNIC/LPHALTER
WUETHNIC/LPCYHAMMER
WUETHNIC/LPTOTEM

PERSONAL SERVICES

a
Bex:
e

MKCRUSH/MKPENNY Pac
MKCRUSH/SKCOTTON “
BEUSEFUL —
BGJAGUAR

ENDOMORPH/ENGAGE

eee
INVESTMENT - Keenan
LPDICTUM/K

LPDICTUM/LPSPICE
LPDICTUM/WUSALTNE

RESEARCH & DEVELOPMENT

MHSHANK bo
: ‘ Rema:

Adi

Aee tu 175 a

Aer 6
a4 tof 3


= 66 - ~
SEGAET
rae A

ENTITIES DISSOLVED ©

AIR SUPPORT

JBGREED/JBCRYING (In Liquidation) . , : 8
JBGREED/QKHEAVERLY (In Liquidation) - i
JBGREED/QKHEEDFUL (In Liquidation) hoot
JBGREED/JBCHOKE (In Liquidation)
ZRBENCH

WUBETON/ WULOBSTER

MARITIME SUPPORT

YOBLADE
AMCRAFT
AMSALLY

MEDIA AND/OR PUBLICATIONS

ESMIDWAY
AMIDEA

AMWIDE (SLOGAN)
AMRAPT
WURABBIT

INSTITUTE OR FOUNDATION

LPWANDER/1

LPWANDER/2

LPWANDER/3

LPWANDER/ 4

JMCLIPPER -

QKBOTTOM ©

QRBIBB . a
PBGREGALE -

QRTRIG RECENT FROM

coe

COVER SUPPORT Ren

JMDUSK LY
FUARRON oan
YOFLUX ‘

KGHELMSMAN .
ECIRON 2
GINSENG/G

SECRET


- 67 -—

vEGRET

ENTITIES DISSOLVED (Continued)

OPERATIONAL SUPPORT
LPGLOBE/WASH
SLIGO
SLAPJACK
LOGISTICS SUPPORT
STOCK ACCOUNT #2
KMFERRY
KMKANGANI
MHOLENT
OPSOMIC
MANAGEMENT & ACCOUNTING

LPPANDA/LPCLOUD

INVESTMENT
WUVENTURE/WUABLE
WUVENTURE/WUBAKER

COMMUNITY. DEVELOPMENT .
—WUAMICE

SECURITY SERVICES —

MHBOUND/1
- MHBOUND/2Z

SECRET =.

TAB A


~ 68 -»

The following entities were sold during the referenced period:

HW 50955 Bocld:32423532 Page 72

oe

Pee

ay

CPC rp

~ 69 =)

Lok

ENTITIES sSoLp
se ULD

AIR SUPPORT

WUSHINE/WUCOMET
WUSHINE/WUELBOW
WUSHINE/WUNOTICE
WUSHINE /WUPUMA
WUGAZELLE/WUBLOWGUN
HUGAZELLE/WUZEBY
ZRCREST/ZRAVAST
ZREREST/ZRCLIFE
NUCLOAK/WUDUSTER
WUCLOAK/WUKARPY
HUCLOAK/WUVI TAL
TUQUEST/ IUABATE
TUQUEST/TUPAGAN
WUSAXA/NUACUTE

TRAVEL BUSINESS
RYO TESS.
WUBEVY

COVER SUPPORT

Se QEEFURT

POEARLY
CALANCET
STFANWEED/STDOLLAR
STMYSTIC

MIHELEN
MIPACT/MICOUNCIL

INSURANCE
MHTHROW
MHMATTE
MHTRONY

* Substantial] Assets Sold; Entities Dissolved

MU


70 -

cnr i
SEG.ET |
i
TAB B Oe
_ 8 oe
ENTITIES SOLD . SS
AIR SUPPORT 7 ——

JBGREED/JBARGON

FOUNDATION OR INSTITUTE
DETNDEED/ TU INHAUL

_ TRAVEL SERVICE
LPJACK

LOW COST HOUSING
WUFLOWER/WUSWAMP .

RESEARCH & DEVELOPMENT
HTNAMABLE

RECER POSS

pes pc iki

i ot 4

SERET a


- 71-

The following entities were “otherwise disposed of" during the

referenced period: ,

HW 50955 DoclTd:32425532 Page 75

aoa ~ 72.-

ae
EN

tak . 1

ENTITIES OTHERWISE DISPOSED OF

AIR SUPPORT
WUEMBARK/WUHALFLIN
WUSTAKE/WUHOBBY
WUSAXA/WUBLUSEE
MOMARRON
WULAZY

COVER SUPPORT

YIPASTIS

FOUNDATIONS OR INSTITUTES
ORBEND
ZROCCUR/ZRIMI DDY
ORSENSE/KMOCHRIOD
AESILVER

MEDIA
PAWALRUS
POVARSITY
GRGLAD
AE EGGHEAD
ACCOUNTING & MANAGEMENT

LPCAPTAIN/LPCANAL

OPERATIONAL SUPPORT

LADYCHAPEL
WUTACTIC/WUDOLLOP

HY Baas peer a CNcenrtE Singer 4 a race
werk: ae a nes? "a a

Ale ative aye See

TAB C

Re

er

~ 73 -

SECHET

ENTITIES OTHERWISE DISPOSED OF

MEDIA AND/OR PUBLICATION

LILISP/G
AMHIM

QKACTIVE

QRMASTER

TPTONIC .
TPTONIC/Fd INDULGE
TPTONIC/ZRNACARAT

FOUNDATION OR INSTITUTE

ZRCANNY
DTHABEAS
DTEMBARGO
ZRTINDER
QRT ROW
PAFANFARE
QKFEARFUL
WSFLUFFER
DTPILLER
DTLAMPREY

QKOPERA/DTGODONN

COVER SUPPORT
QRMUGWUMP

TRAVEL SERVICE
TGVIVID

OPERATIONAL SUPPORT
AMOT

SECRET

wt kt
Reape
een


o

- 7} -

There follows a description of the disposition of entities
sold or otherwise disposed of during the referenced period. Twenty-
nine (29) of the entities were sold or given to witting individuals
(former officers, employees, managers, contractors, etc.) Five (5)
were sold or given to witting individuals who had no formal rela-..
tionship with the proprietary. Ten (10): proprietaries continued to
provide goods or services to the Agency after the disposal. Thirty-—
four (34) proprietaries did not continue to provide goods or services
to the Agency after disposal. In nine (9) instances the provision
or offer to provide goods or services were formal er informal condi-
tions of the sale or gift. In thirty-seven (37) instances this was
not the case. Six (6) proprietaries were sold to unwitting individuals
or organizations and thus no provision for services or goods was indi--
cated: Several miscellaneous dispositions developed which did not
fit neatly into any of the above categories, For example, there
was one merger of an Agency proprietary. with another Agency proprie- —
tary. In two instances the Agency retained a non-proprietary rela-
tionship with a former employee. On two occasions the Agency turned

over proprietaries to other government departments and on one occasion

it sold a proprietary to another government department. There were.

several instances where the Agency gave the assets of a proprietary
after liquidation (books, materials, etc.) to previously uncompensated
participants in the various ventures. On occasion, the corporate
shells were given to attorneys in lieu of fees for dissolution. Some

participants were permitted to retain proceeds of sales in order to

‘continue the original effort of the particular proprietary. And

HW 50955 Bocld:32423532 Page 78


-B-

wl) finally, assets were sometimes given to other proprietaries but

without the benefit of a merger.

HW 50955 Docld:32423532 Paye 79

Gave ak
TAB D
DISPOSITION OF ENTITIES SOLD OR OTHERWISE DISPOSED OF “
” WUSHINE/WUGAZELLE - ° The six air proprietaries in the WUSHINE and =

WUGAZELLE complexes were sold as a package in 1969
to a group of witting U.S. businessmen who had
acted as nominee officers, directors, and stock-
holders for the companies in the WUSHINE complex.
Although the group offered to provide cover and/
or air support to the Agency after the sale, this
offer was not made a condition of the sale, and

no understanding or contract was negotiated for :
prospective purchase of goods or services or =o
cover support. To date, the proprietaries sold ,
have not been used by the Agency.

ry

ZRCREST - These two air proprietary entities were sold in
1974 to the businessman who managed both entities
during the period of Agency ownership. No agree-
ments for the continued use of the entities sold
were negotiated or implied at the time of sale,
and, to date, no subsequent use has been made
of the entities by the Agency.

WUCLOAK/WUDUSTER ~ This air proprietary was sold in 1968 to the
_witting businessman who managed the entity
during the period of Agency ownership. No
agreement for the continued use of the entity
sold was negotiated or implied at the time of
sale, and, to date, no subsequent use has been
made of the entity by the Agency.

WUHARPY - This air proprietary (parts procurement) was
sold in 1965 after all assets had been removed
(a corporate shell) to the witting group of
businessmen from which the entity was originally
purchased. No agreement for the continued use
of the entity sold was negotiated or implied
at the time of sale, and, to date, no subsequent
use has been made of the entity by the Agency.

WUCLOAK/WUVITAL - This air proprietary entity was sold in 1972 to
an unwitting, bona fide airline company. Neo
agreement for the continued use of the entity {
Spm ey me was negotiated or implied at the time of sale, by gives
[ef ‘ FROM and, to date, no subsequent use has been made eyes
: oN. of the entity by the Agency. —— ee
Pe he a]

*

MW TSESTS DSCTHIS2ERASS2 Page BO se Fo Sat WE

TUQUEST/IUABATE/TUPAGAN ~

WUSAXA/WUACUTE

STFANWEED/STDOLLAR

aed
“so

+32423

$0955 —Deeckd 5392-—Page-81- ~~~

gyeye 77 -
a

re) 4
facta we ate

TAB D
Page 2

Substantial assets of these two IUQUEST air
proprietary entities were sold in 1975 to a

bona fide aviation company which was made witting
for purposes of the sale. No agreement was nego-
tiated or implied at the time of sale for Agency
use or purchase of goods or services from the
company which purchased the assets. To date, no
goods or services have been purchased from the
buyer. The entities were subsequently liquidated.

This air proprietary entity was scld in 1971 to

an unwitting businessman. No agreement for con-
tinued use of the entity by the Agency was negoti-
ated or implied at the time of sale, and, to date,
no such use has been made of the entity. :

This proprietary, which published travel guides
and was used as cover for Agency officers world-
wide, was sold in 1968 to the editor of the
travel guides. The editor was an Agency employee i
and retired at the time of the sale. No agree- eames
ment was negotiated or implied for the continuing ;
use of the entity after sale. To date, no goods
or services have been purchased from the entity
by the Agency. :

This proprietary entity, which provided status i
and access cover for several case officers in
the Far East, was sold in 1975 to unwitting
purchasers... There have been no Agency contacts ;
with the purchaser since then. All sale pro- Bylaws
ceeds were returned to the Agency. pte

wee oe

eeerenihalll
This proprietary, which provided cover support -
in Europe, was sold in 1965 to a witting, bona canal
fide company which provided technical assistance :

and marketing support to the proprietary during

the period of Agency ownership. No agreement _ nea
was negotiated or implied for prospective use
of the entity by the Agency, and no such use le
was made by the Agency, The bona fide company, oa

did, however, continue to provide cover for Pe
Agency officers in other areas and under offices me
not related to the former proprietary's business aa
activities. ; pet
be
Senedd

This proprietary was an import-export firm which
provided cover for one Agency employee in the
Far East. The entity was sold to the Agency
employee in 1966 at the time of his retirement
from the Agency. No agreement was negotiated

4


TAB D
Page 3

STFANWEED/STDOLLAR =~ or implied at the time of sale for the Agency's
(continued) purchase of goods or services, and, to date,
no such use has been made of the entity.

STYMYSTIC - This small proprietary, which provided cover for
one -Agency employee in the Far East, was liqui-
dated in 1974. A covert relationship has con-
tinued with the owner of the parent company of
which the Agency proprietary was a subsidiary.
The owner provides cover in the parent company
for another Agency employee, and the parent
company moved into the premises vacated by the ac
subsidiary and was allowed to take over fixtures ee
and a rental deposit at no cost.

MIHELEN - This proprietary, which provided cover for ane
Agency case officer in the Far East, was sold
in 1974 to two local-hire employees of the firm.
All Agency connections with the firm were severed
at the time of sale.

MIPACT/MICOUNCIL - This proprietary, which provided cover for one
Agency employee, was sold in 1970 to the un-
witting members of its Board of Directors.

At the time of sale all Agency connections
with the entity were severed.

MHTHROW - This proprietary (part of the insurance complex)
was formed for the purpose of purchasing an
apartment overseas which was used for operational
purposes. When the apartment was no longer of
operational use in 1970, the company (and the
apartment) was sold to a non-Agency connected
party. No agreement for the continued use of
the corporation or the apartment was made with
the purchaser, and, to date, no such use has
been -made of the entity or the apartment.

MHMATTE - This proprietary (part of the insurance complex)
was established to purchase an apartment overseas
of operational interest to the Agency. When the
apartment was no longer needed for operational
purposes in 1970, the corporation (and the
apartment) was sold to a non-Agency connected
party. No agreement for the continued use of
REC Pty ny the apartment or the entity was made with the
Fog ROM purchaser, and, to date, no such use has been made
: - of the apartment or the entity.


MHIRONY

WUEMBARK/WUHALFIN

WUSTAKE/WUHOBBY
_ WUSAXA/WUBLUSEE

MOMARRON

WULAZY

RECET ® EROM

toe age

pos

TAB D
Page 4

This proprietary was established for the use of

the insurance complex, but it was never activated.
The corporate shell was sold in 1974 to the un-
witting attornies who served as resident agents.
No agreement was made with the purchaser for

the continued use of the entity, and, to date,

no such use has been made of the entity.

This air proprietary was merged with another
air proprietary (ZRCLIFF) in 1968.

This air proprietary was sold to the businessman
who managed the proprietary during the period
of Agency ownership on the condition that the
Agency would buy back the proprietary if the
contract which sustained the proprietary was

not renewed by USAID. The USAID contract was
not renewed, and the businessman dissolved the
entity on behalf of the Agency in 1968.

This air proprietary was disposed of by trans-
ferring all assets to another air proprietary

and turning over the corporate shell to two
unwitting foreign. national nominees. No agreement
with the nominees for the purchase of goods or
services subsequent to the turn over was negotiated
or implied, and, to date, no use has been made of’
the entity by the Agency.

This proprietary was established in the Far East
by two foreign agents of the Agency to provide
support services for Agency-sponsored air opera-
tions. The company failed, at least partly due
to embezzlement by the two agents, and was
liquidated apparently in late 1962 or early 1963.
The Agency station in the country involved

continued to maintain a covert relationship with

the two agents who were politically significant
for some time after the liquidation. The re-
lationship was non-proprietary.

This proprietary was involved in support of air
activities for a.large Agency paramilitary
program in Africa. At such time as the program
was concluded, all assets were removed from
the company, and the corporate shell was given
to the attorney who established the entity in
lieu of paying his prospective fee for dissolv-
ing the corporation.
eter
wee,

i BOERS Pegs FTIOE “BaGe BaF
- " % “ . : i Ty. By
ee cs Se IED OF PARSE

5 eT
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amermendl aa oar


YIPASTIS

QRBEND

ZROCCUR/ ZRMIDDY

QRSENSE/ KMOCHRIOD

AESILVER,

PAWALRUS |

TAB D
Page 5

This proprietary, which provided cover support
for one Agency officer in the Far East, was
abandoned when the country was overrun by
Communist forces. The assets left behind will
be written off.

This proprietary, non-profit organization was
turned over to its management in 1967 when the
Agency withdrew its support to the entity. No
further Agency support has been given to the
entity, and the management intended to continue
the program with private and USAID support.

This proprietary non-profit, medical organiza-
tion was disposed of..in 1967 by transfer of
all of its assets to the witting Board of
Directors for continuation without Agency
support. No further Agency support was given
to the entity. ,

This proprietary, non-profit entity was dis-
posed of in 1968 when all assets were turned
over to the witting trustees who intended to
continue the operation with private support.
No further support was given to the entity
by the Agency.

This foreign proprietary research institute
was disposed of in'1967, at which time the
Institute was surge funded to permit it to
continue operations for approximately two years
while a search was made for private funds to
enable continuation of the Institute or permit
its orderly liquidation. in mid-1969, the
Institute ceased its activity since sufficient
private funds could not be located to fund
Institute programs. No Agency support was
provided after 1967.

This proprietary entity published an English
language periodical in the Near East. The
publishing rights plus certain assets were
sold to indigenous purchasers and the proceeds
of sale were used to pay off corporate liabilities
prior to dissolution of the entity. Since the
periodical continued to publish articles which
coincided with U.S. abjectives for the area
concerned, the Agency provided limited support
to the new owners to enable them to continue
the publication,

Lon aren
CRUG

Lb


- LPCAPTAIN/LPCANAL

TAB D

- Page 6
This proprietary publishing firm in the Far
East provided cover support for one Agency
employee who introduced foreign books and articles_
to Far Eastern media sources. In 1975 the firm
was de-registered and certain assets were sold
to a former employee of the firm who re-registered
the firm under a different name. The Agency
employee who was provided cover by the entity is
still active in the Far East under a new cover
and the only contact with the purchaser is in
the interest of maintaining the cover story of
the active Agency employee. No support is
being extended to the re-registered entity.

This activity provides support to a foreign

based asset to permit him to publish a foreign
language journal, The activity was inaccurately
and inappropriately categorized as a proprietary
when an Administrative Plan was prepared in 1971.
The error was corrected in 1975 when the activity
was accurately categorized as a controlled sub- ~
sidy. The operation continues with Agency
subsidy support.

The U.S. proprietary portion of this book pub-
lishing activity was legally liquidated in -
1968, Funds remaining after settlement of all
liabilities were transferred overseas to other
parts of the operation and were used to meet
approved operational expenses. Some of the
remaining stock of foreign language books was
given to a cleared and witting contact who had
served without compensation as an officer of
the proprietary mechanism. The remainder was
shipped overseas to be distributed by the
overseas mechanisms of the operation which are
not proprietaries.. They continue to distribute
’ books with Agency subsidy support.

This proprietary, which provided management and
accounting services for Agency activities in
Europe, was disposed of in 1974 by removal of
all assets from the entity and transfer of the
corporate shel] to the U.S. businessman who had
backstopped the company without compensation.

No support has been given to the entity or use
made thereof by the Agency.


LADYCHAPEL

WUTACTIC/WUDOLLOP

seaweed, TAB D
. Page 7

This proprietary was established to purchase an
apartment building in Europe for Agency office
and residential use. In 1968, then the build-
ing was of no further use to the Agency, the
entity with the apartment building was ostensibly
given to the Department of State as a gift.

The Department actually reimbursed the Agency
for the building in Washington. The Agency,

on behalf of the Department, is attempting to
liquidate tha company. This ts complicated

by a disputed foreign tax claim.

This operational support mechanism had no assets
at the time of its disposal in 1971, and the
corporate shell was turned over to the attorney
who established the company in lieu of payment
of his prospective fee for dissolving the
entity.

By oR

be
es
F


JBARGON

DEINHAUL

re
G
* oS
Ned
i

ch
iy
aang

TAB OD

Disposition of Entities. Sold or Otherwise Disposed Of *

This air support proprietary (maintenance facility) —

was sold in January 1975 to a bona fide aviation

‘concern which was made witting of the Agency's

ownership of the firm for purposes of the sale.

At the time of sale, it was agreed that JBARGON
would continue to provide aircraft maintenance,
supply, and bookkeeping services te JBCHOKE, the
former parent company of JBARGON. Since the date
of sale, JBARGON has provided $612,000 worth of.
aircraft maintenance, supply, and bookkeeping
services to JBCHOKE; JBCHOKE is now in the process
of liquidation.

This proprietary lending institution (bank) was
established in a European country in 1955 to
provide loans and outright grants to non-communist
cooperatives. The proprietary was ostensibly owned
{backstopped) by a bona fide U.S. foundation which
was subsidized by the Agency, and the bank was
managed by a bona fide management company cn behalf
of the Agency. By 1962 when it was determined

that the bank had accomplished its purposes, the
Special Group (predecessor to the 40 Committee)
instructed that the bank be phased out in an orderly
manner over the next five years. Various disposal
plans were considered over the next few years,

and in 1965 the Agency sold the bank (through its
ostensible owner--the foundation) to the firm

which managed the bank during the period of Agency
ownership. In payment, the foundation accepted
notes from the management firm, payable over a

four year period. It was expected that the payments
of the purchase price would come from the proceeds
derived from the repayment of various types of
Joans made by the bank, and it was recognized that

‘ certain unsecured bank loans were of questionable

collectibility. Accordingly, that portion of

the purchase price which was tied to the repayment
of these loans was subject to adjustment for litiga-
tion expenses associated with collection and a 20%

“collection fee.. Also, this portion of the purchase

price was not subject to interest on the unpaid
balance. It was also agreed that the bank would
administer a fund of $100,000 set aside by the
Agency for continuing grants in less than $25,000
amounts for Agency approved activities which were


= “=

a CRDEST 2 ga
Sebald, - 84 -

DEINHAUL (Cont'd) = - in concert with the original objectives of the pro-
ject.. In 1967 under the terms of the Katzenbach
Report, it was necessary for the Agency to discon-
tinue its support to the bona fide U.S.: foundation
{ostensible former owner of the bank as mentioned
above) which had acted as a collection agent for |
the sale proceeds. Incident to the Agency's dis-
‘engagement from support of the foundation, the
foundation was allowed to keep all proceeds from
Subsequent payments on the purchase price for the
bank. ;

LPJACK oo This travel service proprietary was sold in 1975
‘ to an Agency employee at the time of his retirement.

This individual had ostensibly owned the firm but
.in fact only managed it for the Agency. No agree-
ment was negotiated for the continued use of the
travel service by the Agency, however, the Agency
was using the travel service at the time of sale
largely for the purchase of airline tickets for
travel in support of sensitive projects. This
practice still continues, and it is estimated
that Agency business represents about 30% of the
gross airline ticket sales of the entity on an
annual basis.

i

eben Sade ane ie lae
:

Atl - ,

WUSWAMP - The Agency owned 50% of the equity in this foreign

. entity which constructed low-cost housing in one
of the less developed countries of the world.
The Agency's equity was sold to. WUPESKY, a private.
company which. provided cover for an Agency employee
who managed the Agency's foreign low cost housing

_ program, No agreement was made with WUPESKY for

the subsequent purchase of services or products
of WUSWAMP, and no such purchases were made.
Nevertheless, WUPESKY continued to provide cover
for the Agency Employee until 1973.

HTNAMABLE - This proprietary was a non-profit organization
a which undertook high risk scientific research
programs in support of Government sponsored
reconnaissance programs. In 1966, the Agency
decided to terminate its proprietary relationship
with the entity and it was determined that,
because of the charter of non-profit organizations,
any proceeds from the liquidation would have to
be given to other non-profit organizations or
; tt foundations. Accordingly, the plant and equipment
ce _ were sold to a profit making corporation which
K aan yal created a subsidiary around the assets purchased.
The proceeds of the sale were distributed among


LILISP/G

AMHIM

_ QKACTIVE

ORMASTER

mane - 65 --
SEEN

several non-profit organizations. under Agency
control. An unwritten condition of the sale was

that the Agency would contract with the,new organizi-
ation for scientific research of interest to the
Agency in the amount of about $900,000 over an
eighteen month period. Only about $770,000 was so
committed, and all Agency relations with the
successor organization were terminated in 1968.

This media type proprietary provided cover for

an Agency employee who arranged for a foreign
motion picture firm run by an American to produce
and distribute foreign language films throughout
Latin America. For funding purposes, the proprie-
tary borrowed working capital from another prop-.
rietary, LPBERRY/A, and paid production and -

-distribution costs in anticipation of a return

on the proceeds of film distribution. The prop~
rietary was dissolved in 1961, and all rights to
the net profits of distribution were assigned

to LPBERRY/A in return for cancellation of the
note it held from the proprietary. After much
wrangling with the American awner of the film
production and distribution company, it became
evident that appropriate reports were not being
submitted covering recoupments or net profits

and the Agency negotiated a settlement which pro-
vided that LPBERRY/A and the distribution company
would render no further claims against each other:
Relations eased at that point. . .

This media proprietary compiled, published, and
distributed a newsletter overseas. In 1975,
when the Agency withdrew its support, it was
decided to discontinue the publication activity,
and the assets of the company were turned over
to AMHIM/1, the editor and manager, to enable
him to maintain a status independent of the
Agency as a commercial print shop.

This proprietary radio broadcasting activity was
turned over to the Department of State for support
and subsequently placed under the control of the
Board of International Broadcasters for continued _
operation with Congressional support. |

es

’ ‘This media type proprietary which was involved in radio

and TV projects was established in 1963 and continued

under Agency ownership until 1969 when it was sold

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QRMASTER (Cont'd) = -

TPTONIC
TPTONIC/FUINDULGE
LPTONIC/ZRNACARAT = --
ZRCANNY -
ant
OTHABEAS eo A
as, va :

rng of
Shh ob - 86 ~-

to its manager with full expectation of continued
operation with heavy Agency subsidy. At the time
of sale, substantial funds were removed, from the.
entity leaving it without sufficient working
capital. Consequently, the Agency arranged for

.a@ line of credit through. a bank guaranteed by the

funds removed from the entity. Subsequently, -

the manager, with Agency permission, sold the
entity to a group of foreign nationals. The
manager formed his own corporation which contracted |
with the Agency for services including the continued
management of the company sold of which he was still
president. A management dispute resulted in the
removal of the manager from the first corporation
and the bank seized the guarantee for the Tine

of credit which had been drawn down and used as

. working capital for the first entity. The manager,

no longer supported by the Agency, is the channel
through which the Agency is to receive repayment

of loans which arose out of the line of credit.

So far, the Agency has received. no payments.

' These three proprietary. entities were part of a

substantial radio broadcasting activity which
was turned over to the Department of State for
support and subsequently placed under the control
of the Board of International Broadcasters for
continued operation with Congressional support.

This U.S. foundation type proprietary served as
a funding. mechanism for a labor organization
supported by the Agency. In 1968 ali assets
plus a termination grant were turned over to the

group of U.S. businessmen who backstopped the -

Agency entity. All Agency funds destined for the
labor union were transferred to that organization,
and the Agency created a foreign funding company
(ORSPIDER} utilizing the same businessmen to
continue support to the union. The foreign entity.
is still in being, although inactive, and will

be dissolved after all tag end negotiations are
concluded with the former management of the labor
organization which continues in revised form
without Agency support.

This proprietary non-profit entity was supported
by the Agency until. December 1974 when all Agency

funds were withdrawn and the furniture and.fixtures —


DTHABEAS (Cont'd)

DTEMBARGO

ZRTINDER

ORTROW

PAFANFARE

~

- 87 -

29

were given as a gift to the witting directors who
proposed to continue the entity as a private

organization. No further. contact has been main- |

tained with the entity. . :

This foundation was established in 1938 without

Agency support. After a long period of inactivity,
the Agency took over the entity. in 1953 and used

it to support a publication produced at a U.S.
University and aimed at Latin America. In 1967,

the Agency withdrew its support to the publication,
withdrew Agency funds from the foundation, and

gave the office furnishings to the witting directors
of the foundation with the stipulation that the
furnishings would be turned over to the university.’

This proprietary institute was supported by the
Agency until 1968 when all assets and liabilities
plus a termination grant was turned over to the
management and ostensible owners of the entity

to enable the organization to continue without
Agency control or support. No further contact
was maintained with the organization.

This former proprietary is an institute located
in Europe which seeks to influence and encourage
moderate and pro-democratic youth leaders and
government officials concerned with youth and
higher education. The Agency withdrew its
support from the. institute in 1974 and turned

over all assets to the management of the organiza~ ~

tion. In addition, the Agency provided surge:
funding in the amount necessary to enable the
entity to exist in reduced form for about one year
during which time the management would attempt to,
arrange private support. All Agency employees
involved in the project terminated their employment
relationship with the Agency or were reassigned,
and the Agency has not rendered further assistance
to the operation. . .

This foundation type proprietary provided grants
and other support to individuals and organizations

of interest to the Agency. in the Near East. At

the project's termination residual funds were
turned over to one of the witting trustees to
permit the continuation of the activity for a.
period of time without Agency support. No further.

"Agency support has been given to the organization.

eEOrel

t


QKFEARFUL

WSFLUFFER

DTPILLAR

DTLAMPREY

This foundation type proprietary provided support

to a bona fide international organizatitn interested
in international legal matters. At the time the
Agency withdrew its support for the activity in

1969 the assets of the proprietary plus termination
funding were turned over to the witting Board of
Directors. The organization, now under a new

name, continues to exist without Agency support.

This foundation type proprietary provided funds
to a bona fide foundation involved with the
development of international cooperatives. At

. the time the Agency withdrew its support from the

cooperative program, the entity was dissolved,
however, it had been anticipated that the entity
would be the recipient of funds resulting from
the sale of a proprietary lending institution

in Europe. The bona fide foundation: which was
part of the funding channel for the European

bank was allowed to retain the proceeds of the

sale when WSFLUFFER was dissolved. See the
write-up under DEINHAUL for more details of the
sale of the European bank.

This foundation type proprietary supported indivi-
duals and organizations of interest to the Agency
in the Far East. At the time the Agency withdrew
its support for the activity in 1967, the assets
of the organization with a substantial termination
payment were turned over to the witting Board

of Directors of the entity. The entity has
continued its work without Agency support.

This foundation type proprietary supported an
international organization concerned with indivi-
duals in the teaching profession. At the time
the Agency withdrew its support from the inter-
national organization, the proprietary was
dissolved after making one last termination grant
to the international organization. The inter-
national entity has continued without Agency
support.

This foundation type proprietary supported
individuals and international organizations
involved with cultural matters. To give the
entity substance and provide funds for day-to-day
administration, the Agency started the organization
with a substantial grant which was invested in

6 .

rere
SEEEET


QKOPERA/DTGODOWN
(Cont'd)

QRMUGWUMP

TEVIVID

AMOT

~ B89 ~

GET,

income producing securities. At the time the Agency
withdrew its support, the assets of the entity

were given to its witting Board of Directors with
the understanding that approximately 60% of the
portfolio of investments would be retained by the
organization to sustain its continued operation
without Agency support, and 40% of the proceeds

of the portfolio would be immediately granted to
other organizations and activities which fostered
the objectives of the QKOPERA project.

This small proprietary provided cover for one
individual overseas. In 1972, the employee
resigned and expressed a ‘desire to continue the
business without Agency support. Accordingly,

the meager assets of the entity were sold to

the resigned employee. Payment for the entity
took the form of offset against funds due the
employee on separation, lump sum leave payment,
return travel, etc. The Agency has had no further
interest in the entity.

This proprietary travel Agency provided cover for
an Agency employee overseas. When the employee
was reassigned in 1966, all assets ‘were converted
to cash and turned back to the Agency. Neverthe-
less, an indigenous employee of the entity, and

a contact of the Agency Station in the country
involved, was allowed to take over the name and
clientele and continue the business. No commit-
ments or agreements were made for continued

use of the business, and no support was sub-
sequently provided or sought from the business.

This proprietary, which produced economic and
sociological reports in support of Cuban opera-
tions, was dissolved in 1973 and its assets
turned over to another proprietary, SLIGO. SLIGO
was subsequently dissolved in 1975 (see list of
dissolved entities.)

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a ree)


b) THE SALE OF SOUTHERN AIR TRANSPORT, INC.: A CASE

STUD DIS CIA PROPRIETAR
BACKGROUND

Southern Air Transport Incorporated (SAT) is a U.S. Air Carrier,
incorporated in the State of Florida on October 31, 1949. From its
inception until its purchase in 1960 by the Central Intelligence
Agency (CIA), it was privately owned by Messrs. Fredrick C. Moor
and Stanley G. Williams. It was purchased by the CIA on August 5,
1960, and owned by the CIA through December 31, 1973. CIA sold the

. firm back to Mr. Williams on December 31, 1973.

‘The decision to acquire Southern Air Transport was triggered by
a change in the regulations governing the award of Military Air Trans-.
port Service (MATS) contracts. On April 1, 1960, Air America (AAM).  -
had begun flying a seven-month MATS contract operating out of Tachikawa.
AFB in Japan, to other Pacific locations. In June of 1960, the De-
partment of Defense (DOD) and the Civil Aeronautics Board (CAB) changed
the regulations governing the awarding of MATS contracts to require .
that bidders hold at least a Supplemental Certificate of Convenience
and Necessity for an Air Carrier and that they participate in the
Civil Reserve Air Fleet Program (CRAF). Air America did not meet
either of these new criteria and could not obtain appropriate waivers
to them, The Air. America heavy airlift capability represented an
asset for use by the U.S. Government in future operational contin-
gencies throughout the Far East area. Loss of the MATS contract |

would result in under utilization of aircraft and air crews and the

H¥ 50955 Docld:32423532 Page 94


~

MATS contract revenues were needed to sustain these assets. Therefore,
it was proposed that either AAM should obtain the necessary certi-
fication.or that the Agency should buy another commercial firm that
already held these certifications. The October 1, 1960, contract
date and the need for public hearings and lengthy proceedings mili-
tated against AAM applying for the certificate themselves. Also,
again in order to avoid lengthy public hearings, which would be time-
consuming and generate public exposure, it was decided that the
ownership of the company to be acquired must be kept completely
separate from AAM. This solution was concurred in by the CAB, the
pop, the CIA, and AAM management. |

It was anticipated that if the new company were awarded the
ongoing MATS contract, it would actually perform the flying service |

but would use equipment under conditional sale from AAM and would

employ personnel transferred from AAM. Under inter-company agree-

ments Air America would provide all maintenance work, ground handling,
and other services for which it would be reimbursed by the new
company. “In this way, Air America would share in the revenues
generated by the MATS contracts.

The proposal to purchase a supplemental carrier and operate
it under the above arrangement was approved by Allen Dulles as
Director of Central Intelligence (DCI) on July 15, 1960. Funds

from the Clandestine Services budget for FY 61 were made available

for the purchase.

wert -
After World War II there had—been over 200 supplemental carriers

in-existence. By 1960 there were only 18 still operating. Air

HY 50955 Bocld:32423532 Page 95

s America management made a survey of the 18 and determined that
Southern Air Transport in Miami, Florida was the most attractive
as a purchase possibility. Tt operated two C-46s. -- one owned, one

" leased -- between Miami and points in the Caribbean and South
America. Its associated company owned the four-acre property on
which SAT was located. Moreover, it operated at a modest profit
and had no long-term debts. |

Negotiations for the purchase of SAT were successful and on
August 5, 1960, the CIA exchanged $307,506.10 for all outstanding
shares of capital stock of SAT and its real property owning affil-
iate. The Agency owned these shares in the name of Roger c. Hyatt,
a former board member of Air America. Mr. Hyatt together with -
Percival Brundage and Perkins McGuire were added to the SAT board

‘ of directors. |

Under CIA management Southern Air Transport operated with two

, semi-autonomous divisions: the Pacific Division and the Atlantic
Division. The Pacific Division performed the MATS contract and
supported Agency heavylift requirements in East Asia. The Atlantic
Division continued to operate in the Caribbean and South America;
doing the same sort of flying SAT had done prior to Agency acquisi-
tion. The Atlantic Division was also able to furnish certain support
for the Cuban and Congo operations. At the peak of its activities,
the SAT fleet, comprised of both owned and leased aircraft, included

Douglas DC-6, Boeing 727, and Lockheed L-100 Hercules aircraft.

EW 50955 Docld: 32425532 Paye 96

THE SALE
5 In 1972 it became apparent that the Agency's air capabilities”
were becoming excess to its needs, and that political realities .
and future operational requirements in the post-war era of Southeast.
Asia would not require large air proprietary assets. On April 21,
1972, the Director of Central Intelligence approved in principle
the divestiture of CIA ownership and control of the Air America
complex and Southern Air Transport. He approved recommendations
calling for Air America to be retained until the end of the war in
Southeast Asia, the immediate elimination of the Pacific Division
of SAT, the sale of the two 727 aircraft leased to SAT by Air America,
and subsequent divestiture of Agency ownership and control of the
remainder of SAT.* Specific note was made that conflict of interest
should be avoided and that no employee should receive a windfall
‘ benefit as a result of these transactions, ** | .

In May 1972, Agency officials (Charles Kane and Lawrence Houston)
met with the Chairman of the Civil Aeronautics Board, Secor D. Browne,
and his Administrative Assistant, Edwin Rector, to seek informal |
advice as to the best way to disengage from SAT. Three alternatives
were discussed: (1) dissolve the company and sell the assets;

(2) sell ‘the assets to the current operators of the company; (3) sell

SAT to, or merge SAT into, one of the other supplemental carriers.

* The Director determined that'we no longer should retain air proprie- |
taries purely for contingent requirements and that on the record, there-
fore, the Agency should divest itself of the Southern Air Transport
complex entirely. He stated the opinion that the desirable course of
action would be dissolution, although he realized that the problems

were many and complex. Also, he did not rule out other solutions

which might achieve the end and yet better satisfy the interests of

all concerned.’ .

**k A condition imposed by the DCI was thac"in the disposition of any
of the assets involved nothing inure to the benefit of Agency employees.
or former employees or persons whose relationship with the Agency has
been or is of such a nature as might raise a question of conflict of |

interest}!
HW 50955" Docld:32423532 Page 97

The CAB chairman discouraged option (3) because it would involve

> public hearings and would be subject to criticism by the other supple-
mentals. Option (1), although least troublesome from the legal and ©
exposure standpoints, would further reduce the shrinking number of |
U.S. supplementals (by 1972, there were only eleven supplemental
carriers left) and would be unfair to SAT employees. The CAB
officials had no problem with option (2). On 5\ Ha 1972, the DCT
was presented with the results of the meeting with the CAB chairman.

’ He approved the recommendation to explore the sale of the equity in
SAT to the current management. It was noted that SAT had been operat-
ing as a supplemental carrier for 25 years, none of the employees of
SAT had ever been an employee of the Agency and that both the Depart-_
ment of Defense and the, chairman of ‘the CAB considered it in their .
best interests to keep SAT as a viable carrier rather than dissolving -

» ‘the company and selling the assets. The rationale behind selling .
SAT intact to its management was:
a. Liquidation would deprive the U.S. of a useful air carrier
and would be unfair to the employees.
b. Sale of SAT as a going concern on the open market would gene-
rate an unacceptable level of public interest and serutiny. A
publicly advertised disposition would run contrary to the Director! 3
statutory mandate to protect intelligence sources and methods.
c. Although a potential for conflict of interest and windfall
profit existed, sale of SAT to its management would best
satisfy the requirements of everyone involved. .
The DCI was, apparently, allowed this flexibility in method of
~ disposal by statute. 40 U.S.C. § 474 (17) provides that nothing in

‘the regulations relating to disposal of surplus government property

HW 50955 DoecFd: 32423532 Page 98

> shall affect any authority of the CIA, In addition, 50 u.s.c. §
403(d)(5) provides that the Director of Central Intelligence is
responsible for protecting intelligence sources and methods from
unauthorized disclosure. It was determined that sale of SAT stock

to Mr. Williams in a confidential manner would best prevent damage

to national security and foreign relations of the United States which |
could result from disclosure of ‘CIA ownership.

Agency officials began exploring ways in which SAT could be sold
to its management without permitting a windfall to accrue to the
buyer and in a way that could not be construed as a conflict of
interest. To establish a reasonable selling price, the Agency asked —
the Certified Public Accounting firm of Lybrand, Ross Brothers and |

Montgomery (now doing business as Coopers & Lybrand) to perform a

’ valuation study. They in turn engaged R. Dixon Speas Associates,
Inc., aviation consultants, to establish an evaluation for the
aireraft. The following values were developed:

| a. Book Value of SAT. 7 $39 million
b. Estimated Total Value of SAT
Capital Stock on Open Market $2.645 million
c. Disposal as going concern $2.1 million
d, Liquidation Value $1.25 million
e. Agency Investment $1.5 million
Based on these figures, the Executive Director-Comptroller on
August 17, 1972, approved an asking price of $2.7 million. Sale
at thig price to the management would require simultaneous payment
~ in full of the $3.2 million note payable to Air America through

HW $0955 Docld:32423532 Paye 99

ky

Actus Technology (as the associated land holding company had been

oD.

renamed) and would not include any equity in the leasy/purchase
agreement between SAT and Air America for a Lockheed L 100-30
Hercules aircraft. Although this $2.7 million price was less than
the $3.9 million book value, it did exceed the fair market value of
the company as calculated by professional appraisers. The appraisals —
were based not on depreciated purchase prices for assets, as reflected
in book values, but rather on either the earning power of the- assets
adjusted to “present value” or the current resale value for all
assets. |

On August 23, 1972, Mr. Williams was advised of the asking price _
for SAT of $2.7 million for the acquisition of stock and $3.2 million
for payment of debt to Air America or a total of $5.9 million. A .
deadline date of October 1, 1972, was established; otherwise Mr.
Williams was advised that the firm would be dissolved and the assets
liquidated. Although Mr. Williams contended the asking figure should

be reduced since the outstanding loan to Air America had been reduced

since the date of the study by Coopers & Lybrands, Mr. Williams stated

he would attempt to work out financing within the deadline date of
October 1, 1972. This deadline was extended by the Agency to

December 4, 1972.
On December 5, 1972, Mr. Williams submitted an offer for SAT of

$5 million which comprised $1. 875 million for the acquisition of
SAT and $3,125 million to pay off the debt to AAM. On December 26,
1972, the Executive Director-Comptroller approved the recommendation

that Mr. Williams' offer be rejected and that if Mr. Williams was

HW50955 Daold:32423532 Page 100


y,

unable to raise by January 20, 1973, the additional funds required

for the
America

original purchase price of $5.9 million, including the Air

debt, that. the Agency proceed with Liquidation plans and

dismissal of SAT employees not later than February 1, 1973.

“On

purchase SAT for a total price of $5,605,000.

January 11, 1973, Mr. Williams submitted a new proposal te

tentative commitment for a loan of $4.0 million and his offer was

contingent upon an ‘additional loan. The offer called for a total

payment of $5,605,000 broken down as follows:

Acquisition of stock for Actus and SAT $2.145 million .
Payment of debt to Air America 3.125 million
Credit for payments to AAM since

10,\June) 1972, in liquidation | of —_
long term debt .335 million

Total payment $5. 605 million

Prior to accepting Mr. Williams’ offer, CIA representatives

again discussed the sale of SAT to Mr. Williams, Mr. R. Tenney

Johnson of CAB indicated that the board would be interested in —

seeing SAT continued.

to surface the Agency's name as the true owner of SAT in the CAB

proceedings, and that he did not anticipate any problems with

Mr. Williams cited a

Mr. Johnson stated it would not be necessary

other supplemental carriers as a resule of the sale to Mr. Williams.

On January 19, 1973, the Del approved the sale of SAT to Mr.

Williams.

a

of the original asking price, was above the independent evaluation

»

Tt was noted. that Mr. Williams' offer was within’ 5 percent.

for sale as a going concern and was at a figure which would not seem

te give the buyer windfall profit. Such sale would constitute a

HY 50955 Docld:32423532 Page 101

i)

clean break-away of SAT from the Agency with the exception of a one
year extension on the lease/purchase agreement for an L.100-30 air-
craft from SAT. This agreement for sale between Mr. Williams and
the Agency included a provision that any profit derived from the
sale of assets within one year would constitute a windfall and
would be added to the total sale price. |

On February 28, 1973, the Board of Directors of SAT executed
corporate action on the Agreement for Sale of SAT to Mr. Williams.
Closing date was established at not later than 30 days after CAB

approval. On March 1, 1973 application for approval of acquisition

‘of control of SAT by Mr. Williams was filed with the CAB under

Docket No. 252-64. It was anticipated that CAB approval would be
forthcoming within 60 days. oo
Subsequent to the agreement for sale and application to CAB,
several supplemental carriers generated a great deal of pressure to
prevent SAT from being sold to Mr. Williams and to prevent SAT from

operating as a supplemental carrier. qathis pressure was-applied

through their Congressional representatives, the General Accounting

Office, the General Services Administration, and other ways. The
various supplemental carriers objected to the sale of SAT for a
variety of reasons. Basically each objected to the portions of
SAT's operating authority which would allow SAT to compete with it.
Specifically, representatives of Overseas National Airways (ONA)
indicated that ONA would not oppose the-sale if Mr. Williams would

voluntarily renounce his rights to Trans-Pacific routes. World

BW 50955 DBocld: 32423532 Page 102

Airways and Trans International Airways (TIA) objected to SAT

operating any aircraft as large or larger than.a 727 in the Far

East. Saturn Airways objected to SAT bidding on any domestic MAC.

contracts. To restrict SAT to satisfy all potential competition

could make SAT sufficiently unattractive as a profitable investment

that financing could become unobtainable. With this in mind the

Agency took the position that agreement for sale of SAT had been
executed, subject to CAB approval. If the CAB ruled against the -
sale and ownership reverted to the Agency, the Agency would cease
any bids or service under MAC contracts and dissolve SAT.

Two of the other supplementals, Saturn and ONA, expressed
interest in buying SAT. ONA did not make a cash offer. On June 29,
1973, Saturn Airways, however, made a cash offer of about $2 million -

in excess of what Mr. Williams had offered. There were, however,

according to the Agency, compelling reasons not to pursue these

offers. Agency officers had reason to believe that ONA was not as
interested in actually buying SAT as they were in getting a commit-
ment from the Agency which could be used to compromise the. Agency’s

position in future CAB hearings. Three reasons for not accepting

’ either offer were:

HW 50955 _

a. Any merger with another supplemental carrier would
necessitate a very difficult series of CAB hearings during
which all other major supplementals would certainly voice

loud and strenuous objections.

Docld:32423532 Page 103


b. To sell the firm on a sole-source basis to either

outside buyer without soliciting public bids would be

contrary to sound business practice and would attract

even more adverse publicity.

c. Both offers were made directly to officials of the ©

CIA and not to the stockholders of record. Although the

relationship between the CIA and SAT was the subject of

much public speculation, such relationship was still .

classified and an acceptance of either offer would be a

violation of security and cover. | .
These procedures were unaeceptable to the Agency and dissolution of
the firm or sale to Mr. Williams continued as the most acceptable
method of divestiture, subject to CAB approval. .

In view of the objections by other supplemental carriers to
the sale of SAT to Mr. Williams and the award by the Air Force of a
Logistics Air contract (LOGAIR) to SAT, the DCI directed on guly 31,
1973, that SAT be dissolved, that SAT withdraw from the LOGAIR con-
tract and withdraw its application for renewal of supplemental
certificate. Mr. Williams was advised of this decision, but made
a counter’ offer to purchase the company under the previous financial
offer but turn in his supplemental certificate, withdraw application
for acquisition for sale from CAB, and operate SAT as a commercial
carrier under Federal Aviation Regulation Part 121 authority. Such
action would remove SAT from direct competition with the supplementals,
but leave it with a worthwhile market in which to operate. : Addi- |

tionally, no CAB hearing would be necessary to obtain this type of

HW 50955 Docld:32423532 Page 104.


operating authority.

CJ

On October 1, 1973, the DCI agreed to entertain the proposal
to continue the sale of SAT to Mr. Williams as a Part 121 operator,
but on the condition that Mr. Williams must obtain prompt financing.
Otherwise, the firm would be dissolved. .
On October 5, 1973, the SAT Board of Directors approved and
executed a new.agreement for sale including the following provisions:
a. Mr. Williams to acquire stock of SAT Actus for
$2,145,000. oe
b. Mr. Williams to pay off $3,125,000 owed to Air America.
ce. Agreement subject to Mr. Williams obtaining $4 million
loan. |
d. Agreement to. be subject to SAT withdrawing application
NO for renewal of its Certificate of Necessity and Convenience
for an Air Carrier (Supplemental Certificate).
e. ‘Lease/purchase agreement for L-100 between AAM and SAT
to be extended one year. . |
f. Anti-windfall provision to be effective for one year from
date of sale. :
On November 29, 1973, Mr. Williams received a commitment from
The First National Bank of Chicago for a. loan of $4.5 million thereby
making the October 5, 1973, agreement operative. On November 30,
1973, the DCI approved the sale of SAT in accordance with the
October 5 agreement for sale. On the same day, the application to

the CAB for acquisition of SAT under Docket No. 252-64 was withdrawn.

HW 50955 Docld:32423532 Page 105


and petition. for cancellation of certificate and termination of

7)

exemption authority was filed with an effective date of December 30,
1973. On December 31, 1973, the sale was closed, the note to Air
America was paid off, and Stanley G. Williams became the sole
owner of SAT. |

. In early January 1974, CIA officials learned from Air America
management that SAT had exercised the purchase option of the lease/_
purchase agreement between SAT and Air America for the Lockheed .
L 100-30 Hercules aircraft. The option sale price from Air America
was $3,150,000. SAT immediately resold the aircraft to Saturn .
Airways for $4,350,000 turning a quick $1.2 million profit. The
Agency interpreted this sale as a violation of the anti-windfall
provisions of the agreement for sale. On January 25, 1974, Air

’ America executed an Escrow and Arbitration Agreement on behalf of

the CIA with SAT on the disputed $1.2 million profit. The agreement
called for $750,000 to be placed in escrow with the American Security
and Trust Company of Washington, D.C. The escrow funds were to be
held as a Certificate of Deposit purchased at the prevailing market.
rate. It was further agreed that SAT would also place in escrow
a Promissory Note to Air America for the remaining $450, 000 of the
disputed amount. The note was to bear interest at the same rate
currently being earned on the Certificate of Deposit in escrow.
It was arranged that the escrow deposits plus accrued interest would
be paid to the party deemed in favor by an arbitrator with each

party to pay one-half of the costs of arbitration. On September 5,

HW 50955 DBocld:32493932 Page 106

'

1974, the arbitrator ruled in favor of Air America. This decision
caused an additional $1, 304,243 to accrue to the Agency: from the
SAT sale, This was the sum of the $1. 2 million under arbitration

plus accrued interest, less the Agency's share of arbitration. costs.

DECLASSTIFICATION OF RELATIONSHIP WITH CIA

In March 1974 the employees of SAT retained an attorney and
brought a élass action suit in U.S. District Court for Southern
Florida against Southern Air Transport, Ine., and the Central Intel-
ligence Agency. The employees as plaintiffs sued for injunctive
relief and damages. In this suit the employees alleged: .

a. That the CIA sold the stock of SAT to Mr. Williams —
illegally, |

b. That SAT had embarked on a program to sell off its
assets, depriving the plaintiffs of employment,

ce. That the plaintiffs were entitled to the benefits of
the CIA Retirement and Disability System, and

d. That their civil rights had been violated.

In view of the publicity arising from the allegations made by
the other supplemental carriers during the CAB proceedings and the
publicity arising from. this suit, it was determined that no useful
purpose would be served by continuing to deny the true ownership
relationship of SAT by CIA, It is noted, however, that the opera-
tional activities performed by. SAT on behalf of CIA were and remain.
classified. As a part of the Agency's defense in this suit, an

affidavit of Mr. Harold L. Brownman, Deputy Director for Management

HW 50955 Docld:32423532 Page 107

“ and Services of the CIA, was presented in court. In the affidavit

Mr. Brownman delineated the relationship between CIA and SAT and the
authorities for purchasing and later selling the capital stock of
SAT. He also defined the employment status of the plaintiffs as
not being government employees and not being CIA employees and —
therefore not being eligible for participation in the CIA Retire-
ment and Disability System. |

in the Order Granting Motion for Summary Judgment, the court
found that the sale of SAT capital stock to Mr. Williams was not in.
violation of law; the plaintiffs claim to be U.S. Government employees
and entitled to cIA retirement benefits invalid; and that the SAT
employees were not deprived of any civil right under any state law.: 7
As a result, the action was dismissed with prejudice as to the —

a plaintiff. Although this suit did cause the relationship between

the 4zency and SAT to be officially made public, it did establish,
in a court of law, two points favorable to the Agency: |

a. The sale of SAT to Stanley Williams violated no laws

and was within the authority of the DCI; and

b. The directly hired employees of ClA-owned proprietary

firms such as SAT do not necessarily enjoy the status of

U.S. Government employees.

CONFLICT OF INTEREST
In the SAT divestiture, the Agency took precautions to avoid
conflict of interest. Mr. George A. Doole, Jr., retired Staff

Agent and retired Managing Director of Air America, Inc., made.

-,

HW 50855 Doacld: 324233532 Page 108

t}

several offers to acquire SAT. In early 1972 he and some other
members of AAM management made. an informal offer to buy SAT, Then
on August 7, 1972, Mr. Doole told Mr. Charles W.. Kane, Agency

‘official responsible for the management of SAT and AAM, that he,

_in association with World Airways and TIA, wanted to offer "book
value" for SAT. He stated that they were not interested in SAT's
certificate, but rather in the equipment and that if allowed to
make an offer, it would be one that would not require CAB hearings.

In both these cases, the Agency's General Counsel determined that -
because of Mr. Doole's close association with the Agency, the offer
would be unacceptable. In later discussions, Mr. Doole asked to be -
allowed to bid on SAT in open bidding. The General Counsel's posi-
tion on this request was that open bids would be begging the question
in terms of conflict of interest. In any transaction this complex,
selecting the bid is only a préliminary to the negotiated final.

sale. 7 7

_ Another potential conflict of interest involved Overseas

National Airways. From the time the Agency first decided to divest,

until the sale to Mr. Williams was consummated, ONA expressed con-

tinuing interest in an ONA/SAT merger. Their representative making
these continuing overtures to the Agency was retired Admiral William

F.. Raborn, former Director of Central Intelligence. Admiral Raborn

made literally. dozens-of phone calls to Agency officials and arranged

many meetings, all for the purpose of pressing ONA’s case to purchase

SAT. ONA also proposed. to arrange “shadow financing" for Mr, Williams

a) if he would agree to merge with ONA at some later time. These offers

HW 50955 Doold:32423532 Page 109

were all rejected because merger with another supplemental was
not an acceptable solution and the apparent conflict of interest
was too great.

The sale of SAT to the President of the firm, Mr, Stanley
Williams, was another area of possible conflict of interest.
However, Mr. Williams was not an employee of the U.S, Government
during any period of association with SAT.or CIA. He had been
the owner prior to CIA acquisition and his role as nominal President
of SAT during CIA ownership was at the direction o CIA, which made
or approved all decisions in regard to acquisition of aircraft and
other major policy. determinations. Additionally, this potential
area of conflict had been recognized at the outset of sale pro-
ceedings, which was the basis for obtaining third-party professional .
evaluation and appraisals and the provision in the sale agreement
against windfall profit from disposition of assets. An underlying
philosophy for sale back to Mr. Williams was to restore the corpo-
vation to the status of private ownership once the need for it as
a Government~controlled entity had terminated. Such action was
considered in the best interests of the SAT employees as well as

in the interest of the U.S. Government to maintain another viable

commercial air carrier.

CONCLUSION

The CIA acquired ownership of SAT and its veal property owning

affiliate, by purchase of all outstanding shares of capital stock

on August 5, 1960. Such acquisition was accomplished under the

BW 50955 Docld:32423532 Fage i110


authority of the Central Intelligence Act of 1949 in order to
acquire a certificated air carrier to support its foreign intel-
_ligence operations. The purchase was accomplished after consul -
tation and approval by the CAB and the DOD, and was not in violation
of Section 410 of the Federal Aviation Act.

Following determination by CIA in 1972 that ownership of SAT
was no longer required to support its foreign intelligence opera-
tions, the CIA undertook to dispose of SAT under the authority of the
CIA Act of 1949 and the specific provision in the Federal Property
and Administrative Services Act of 1949 (FPAS Act) that nothing in

' the act shall impair or affect any authority of the Central Intel-
ligence Agency. ‘In the case of Robert Farmer, et al., vs. Southern
Air Transport, Inc., et al., the U.S. District Court, Southern
District of Florida, Case No. 74-467-CIV-WM, upheld the authority
of CIA to dispose of Southern Air Transport, Inc. |

In disposing of SAT, the CIA determined after discussions with
CAB that SAT should not be sold as a going concern in an open
competitive market nor should merger with another air carrier be
considered. Such action would involve lengthy procedures, hearings,
and publicity which posed a threat to CIA's ability to protect
intelligence sources and methods. While CIA initially was inclined
to dissolve SAT and sell the assets, CAB and pop both indicated
their desire to maintain SAT as a supplemental commercial air
carrier, Since this solution also would be in the best interest

_of the SAT employees and there were indications this could be

BW 50955 Bocld: 32423532 Page ili

- 89-19 -

accomplished without revealing ownership by CIA, CIA approved
exploring the sale of SAT to its previous owner and current
-nominal President, Mr. Stanley Williams.

The CIA took reasonable precautions to assure that a fair
market price was received for the sale of SAT, and that no short
term windfall profit would ensue, The CIA was mindful of conflict
of interest problems, and obtained independent professional advice
and guidance prior to executing an agreement for sale. The sale
price finally received by the CIA exceeded the parameters estab-
lished by this independent study.

In retrospect, it is possible that open competitive bidding
for sale of SAT as a going concern could have achieved as much or
more return to the U.S. Government for the assets of SAT. However,
such assessment is only conjecture since this market was not fully
tested. Also this method of disposal had the potential for greater
publicity and revelation of intelligence sources and methods. In
retrospect, the alternate solution of dissolution of the corporation
and sale of assets probably would have created less publicity but
again this is only conjecture, since the SAT employee law suit may
well have been forthcoming in any event.

| In conclusion, the CIA obtained a fair market value for the
sale of SAT as evaluated by an independent professional appraisal.
The legality of the disposal of Southern Air Transport by the CIA
has been tested in court and has been shown to be fully within

the statutory authorities and responsibilities of the DCI. The

HY 50955 Docld: 324234532 Page 112

~ 89-20 - .

precautions taken and the procedures established by the CIA consi-~
dered the varying factors of responsibility for public funds, con-
flicts of interest, U.S. Government interests for the aviation

‘industry and its employees, and national security. The CIA actions

in the disposal of SAT, accordingly, were reasonable and proper.

HW 50955 Docld:32423532 Page 113

~ 90 -

VI. Project MHBOUND

In 1958, at the time construction of the new CTA headquarters
building in Langley was begun, a small counterintelligence opera-
tion was established to maintain surveillance of activities to
prevent hostile penetration and sabotage. It was successful in
its objectives and, therefore, upon occupancy of the building
in 1962 the Project, now known as MHBOUND, was established as an
outgrowth of the initial effort.

From a single office in Arlington, Virginia, the project ex-
panded to four field offices (Arlington, Falls Church, Los Angeles
and St. Louis). Also, it grew from a single corporate entity into
three separate corporations. The parent organization in 1962 was
Anderson Enterprises, Inc., which operated in the greater Washing -
ton area and was set up to create a bona fide commercial corpor-
ation which would perform security services on a competitive basis
for any and all individuals and companies which might require

‘them, as well as Federal and local governmental units. In addi-
tion, it would conduct operations for the Office of Security of
the CIA. This activity proved most successful, with customers
utilizing it for document destruction, Hr consultation, for
guard work, and for investigations.

Anderson Enterprises, Inc. developed legitimate business
contracts with agencies of the Federal government and with commer- .
cial firms. The provisions of the so-called Pinkerton Act 'pro-

a work
hibit a company engaged in investigative /from contracting with

HW 50955 Docld: 32423532 - Page iid

- 91 -

the Federal government. In order to protect the commercial
cover, it became necessary to form a separate company to handle
investigations in response to the requirements of commercial
firms. Further, it became necessary to set up notional conmmer-
cial firms through which to fund MHBOUND. for investigative work
levied upon it by the Office of Security. At the time this
split was accomplished, Anderson Enterprises, Inc. changed its
name to Anderson Security Consultants, Ine., with its head-
quarters remaining in Arlington. The new company was called
Anderson Security Services, Inc. and made Los Angeles its home
office. As activity expanded and work increased, a third corp-
oration called General Personnel Investigations, Inc. was organ-
ized and also headquartered in Los Angeles.

On January 23, 1966, for legal, cover and operational rea-
sons and increased administrative efficiency, Anderson Security
Services, Inc. (ASST) merged into General Personnel Investigations,
Inc. (GPII) and remained incorporated in the state of California..
Upon the merger, ASSI ceased and GPII succeeded it. The corpor-
ate officers and the board of directors of all three companies
consisted of the same persons. Subsequently, GPII was sold and
new legal straw men were introduced as officers, directors and
shareholders. The home office of General Personnel Investigations,
Inc. was subsequently established in Falls Church, Virginia in
March 1966 for greater administrative efficiency and firmer mone-

tary controls on the projects as a whole, and to greatly enhance

HW 50955 Doocld:32423532 Page 115


~ oF .

cover viability. Also of particular note, the "home office",
-with its investigative charter, has been used in the conduct of

covert investigations.

In addition to the conduct of investigations, MHBOUND was
used in the following activities:

(a) TPOCTONAL - covert monitoring of construction of CIA
Headquarters building;

(b) Monitoring of construction of West Gate Research Park
buildings, which were to be occupied by Agency components;

(c) TAPIR - covert monitoring of construction of CIA print-
ing services building;

(d) ZULU - surveillance of DOD civilian employees suspected
to be potential defectors ta Soviets;

(e) STPROBE - testing security effectiveness at domestic
DDS&T sites and contractor facilities;

(£) MERRIMAC ~- monitoring of dissident groups in D.C.;*

(g) AEDONOR - the proprietary hired and paid contract guards
for one phase of this activity;

fh) ISOTROPIC - the proprietary was a civilian contractor for
the guard force at this installation;

(i} TWOFOLD - was an Office of Security cryptonym for an oper-
ation to recruit, process and train undercover internal security

agents for the Bureau of Narcotics and Dangerous Drugs;

* This particular project and other aspects of MHBOUND's domestic
activities are treated in greater detail in the Committee's Staff
Report dealing with the operations of MHBOUND.

HW 50955 Doeld:32423532 Page 116

- 93 -

(j) DELICATE - security support for DDS&T project, consisting
mainly of badging and entry controls, background investigations,

. and escort of sensitive material; this is the only such activity
currently being serviced by MHBOUND;

(k) PINEAPPLE - physical surveillance of an Agency courier
suspected of living beyond his means; also involved a surreptitious
entry into his apartment ;

(1) BOOTS - physical surveillance of an Agency employee ‘who
maintained contact with people of questionable loyalty"; also in-

volved an audio penetration of the employee's apartment and a mail cover.

Funding for the proprietary is accomplished through a cut-out
mechanism whereby the Agency sends U. S. Treasury checks to ten
contractors. The proprietary then bills the contractors for
“services rendered" in the same amount as received by the contractor
via Treasury check. Funding’ for the other corporations was done
through use of notional firms. The ISOTROPIC guard force contract
was handled by intra-Agency transfer of funds. BNDD reimbursed the
Agency for all TWOFOLD expenses, except for salary of the one staff
agent. DOD reimbursed the Agency for all ZULU expenses.

Los Angeles is the only MHBOUND office currently in operation.
During Fiseal Year 1975, 2,226 investigations were conducted, 6,125
man-hours were rendered in support of DELICATE, and a total of .
$551,000 was expended. Purely commercial income averages between

$20,000 to $25,000. Much of this comes from walk-in business, which,

HWW50955) Deold:32423532 Page i117

- 94 -

for cover reasons, cannot be refused. Over the past few years,
this has involved badging operations for private companies, i.e.
airlines, schools, etc. The company has never made a true profit.
To maintain its image among its competitors, however, its books
teflect a small profit on which Federal and state taxes are paid.
The office presently employes four staff agents, five contract
agents and fourteen proprietary employees. During Fiscal Year
1974, the project expended 2.9% of the OS budget ($551,000 vs.
$19,026,530).
MHEOUND, as noted, has provided support to the Office of
Security and Agency operators on sensitive covert operations
and investigative matters, CI/CE support for components of the
Agency, custodial support, courier support on truly covert activ-
ity, guard support, special non-government and sensitive inquiries
. (CI/CE probes through STPROBE), technical and physical support
in surveillances and Agency proprietary support. Its commercial
capabilities have included: confidential consultants, internal
security management, security surveys, counter-audio measures and
inspections, development, installation and maintenance of security
protective equipment and devices, classified material storage equip-
ment, secure destruction of classified waste, incinerator equipment
sales, polygraph examination, investigations (personnel), and
industrial undercover activities.
_ A unique example of its Agency security function was project

STPROBE, which utilized both security probes and security pene-

HY S0855 Dackd:32423532 Page i186

- 94-1 -

trations. A security probe is a testing of the current effec-
tiveness of all or part of a security system within an Agency

or Agency contractor's installation. A security penetration is

an internal covert investigation and search targeted at possi-

ble subversive elements within a facility who may be engaged in
foreipn intelligence or acts of sabotage or who by lack of security
discipline or gross malfeasance may be weakening the security
structure of the project or facility. It is, in essence, counter-
intelligence against a domestic installation. Eastman Kodak, for
example, was the target of a probe. An agent was sent under the
natural™ cover of a union construction man to Eastman to gain
employment as a pipefitter. He succeeded in gaining access to

the target, and developed information on the installation and

its personnel in surrounding areas of the union hall, bars, cafes,
and in other appropriate places around the target area. Similar
probes were conducted against Pratt and Whitney in West Palm Beach,
Florida, Lockheed Aircraft Corporation in Burbank, California, and
other targets in New York, Nevada, and Arizona.

These entities serve a useful function within the scheme of
necessary security required by sensitive Agency operations. Their
utility, however, as in the case of nearly all proprietaries is
relative to policy and "flap" demands. As one Agency commentator
phrased it. when Newsweek revealed the relationship of L. Lee

Bean and Paul Hellmuth of the Boston law firm of Hale and Dorr

* He was in fact a legitimate tradesman.

NW 50955 Docld:32423532 Page 119

- 94-2 -

with the CIA in setting up proprietaries:

Proprietaries have been and will continue to be an

important tool to achieve selected operational

objectives. Their use, however, has been drasti-

cally cut back, more because of changes in the

international scene and in operational priorities

than as a result of embarrassing exposures.
Of course, as has been the case with nearly all other proprietaries,
not everyone within the Agency has been satisfied with the mechanism.
Indeed, there has been constant review, criticism and internal
restraint due to a certain fear and suspicion of entities such as
Anderson which are "out there’ and not readily accessible to the
leash. For example, in June of 1964, the Chief of the Operation
Support Division wrote to the Deputy Director of Security (Investi-
gations and Operational Support) concerning MHBOUND's policy and
procedures. In terms of operational objectives he noted that they
thhad “created an operational support entity of dubious capability
and with ill-defined objectives or purpose.'’ He suggested that
they “look this ugly duckling in the face" and see if it could be
terminated gracefully or “see if we can nurture it into a productive
and responsive bird of acceptable countenance."*

He "received the definite impression that there may be some

grey area with regard to the internal channels of command and admini-

strative direction.” He noted that there was confusion resulting

-* In many cases these concerns dealt with the inability of the
entity to provide adequate cover. for itself in order to more
adequately fulfill its role. In one instance, the physical
backstopping of MHBOUND was inadequate. After this was rectified,
one official noted: .

It is felt that this step has strengthened the
Anderson Enterprises' cover, both in Boston and
Washington so that now the company could withstand
any inquiries, except that of an official govern-
ment investigation.

HW 50955 Docld: 32423532 Page 120

~ J4u2eg -

from lack of a clear-cut distinction "at just what level policy
matters may be decided . . .'' Management procedures for the
project were such that “under the current status everyone may take
credit but no one could be blamed."" As far as operational capa-
bility was concerned he remarked:

Quite candidly, I am somewhat concerned about the
operational capability of Project MHBOUND. It seems,
as a result of its Topsy-like growth, to be oriented
toward the military and the building trades. Quite
candidly, it is felt that the base must be broadened.
Further, I am far from convinced that we have yet
developed anywhere near the professional status neces-
sary to “sell” this Project as one having unique opera-
tional capabilities sufficient to justify its existence.
In other words, I am not impressed with the capability
as it now exists nor am I sure that we can sell this
product and then be assured that it can perform in a
satisfactory manner.

His comments concerning the attitude of Agency personnel were not
unique to this proprietary, but they are set out here as illustra-
tive of the singular problems these entities pose. His remarks
also show the dangers inherent in some areas of this activity.

It would seem that this Agency, particularly operating
components, are insistent upon pursuing an "ostrich
policy" when it comes to their operational security

‘ procedures. I have personally witnessed almost hyster-
ical reactions to criticisms as well as total rejections
of practical suggestions with regard to operational
security procedures. Now it seems to me that we are
going about this in a very awkward and embarrassing
manner. WE ARE, IN EFFECT, ALLOWING. THE WRITERS OF
SENSATIONAL BOOKS SUCH AS THE "INVISIBLE GOVERNMENT"
TO PROVIDE THE NECESSARY INFORMATION AND PRESSURE ON
TOP AGENCY MANAGEMENT TO CORRECT GLARING AND STUPID
COURSES OF ACTION BEING PURSUED AT THE WORKING LEVEL.

-Y have been the object of considerable personal ridicule
due to my stand in opposition to the unrealistic cover
and operational security procedures as they relate to
certain aspects of (CIA Operational Base) for example.

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IF we had the authority and capability to have made

an objective probe of this sensitive activity we may
have been able to have surfaced these obviously ridi-
culous procedures in such a manner that corrective
action would have been taken. Now is the time to
present the case in light of the abiding fear of publi-
eity currently permeating the Agency. I recommend that
we go after the authority to make independent (uni-
lateral) probes and/or probes requested and known only
at the very highest levels of the Agency with the results
discreetly channeled where they will do the most good.
There necessarily follows the unpleasant subject of
money. As distasteful as it may be, it is no good to
have the authority without a sufficiently large confi-
dential fund set aside and earmarked for independently
iniated activities.

He emphasized that if the Agency did not take the above kind of
action to monitor its “image"' at the operational level, "we will
continue to be plagued with the unsolicited and uncontrolled
eritique through the newspapers, periodicals and books." He
eritically concluded:

Further, I challenge anyone to deny that such exposes

to date are largely true and usually the result of our

own “ostrich policy" and refusal to face the fact that

we have operated in some relatively amateurish manners
over the years.

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Such concerns have extended beyond these operational levels
to general issues of propriety and legality. For example, as
noted earlier (supra, p. 90) the so-called "anti-Pinkerton Act"
prohibits a company engaged in investigative work from contracting

with the Federal government. But. .

the Agency and its predecessor organizations began
contracting as early as November 1942 with certain
commercial, investigating companies to perform in-
vestigations and to provide commercial credentials
to, and cover backstopping for, Agency investigators.

As of March 1975, the Office of Security had a relationship with
three such companies which issue their credentials to Agency inves-
tigators and backstop the cover of same. Two of the three have
previously “conducted limited personnel investigations” on behalf
of the Agency. During that same period the Director of Security
asked the General Counsel of the CIA whether the "Anti-Pinkerton
Act" prohibited the Office's continued contractual relationship
with these three private companies or their employees for pur-
poses of conducting investigations or providing cover, or both.
The General Counsel responded as follows:

I am aware that in fulfilling the responsibilities

placed upon your office in support of the Agency's

mission, many investigations must be conducted with-

out revealing Agency interest and in some, without

even revealing Government interest. Absent the

relationships you question, you could not discharge

your responsibilities. It is this inability to

accomplish your tasks which causes recourse to the

Agency's rather broad statutory authority to expend

funds as contained in Section 8 of the. CIA Act of
1949, as amended. This authority provides

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‘

(a) Notwithstanding any other provision of law,
sums made available to the Agency by appropria-
tion or otherwise may be expended for purposes
necessary to carry out its functions, including --

(L) personal services, including personal
services without regard to limitations on
types of persons to be employed,

* * * *

(b) The sums made available to the Agency may be
expended without regard to the provisions of law
and regulations relating to the expenditure of
Government funds; and for objects of a confiden-
tial, extraordinary, or emergency nature, such
expenditures to be accounted for solely on the
certificate of the Director and every such certi-
ficate shall be deemed a sufficient voucher for
the amount therein certified.

Ie is my opinion that this authority permits the Agency
to continue the two practices as set out above without
fear of violation of the Anti-Pinkerton Statute.

He closed, however, with the following admonitions:

There are, of course, other dimensions to the question
you raise. As a matter of policy I believe the prac-
tices should be reviewed at the highest levels within
the Agency and, perhaps, cleared with the Agency's
oversight committees. In addition, if one of these
relationships became public, it must be recognized

that there will be allegations that the law has been
viclated. On balance, it is my view that these consi-
derations are not so significant as to warrant a termi-
nation of the two practices with the three companies.
It is suggested, however, that any subsequent, projected
association with a detective company or private investi-
gative company beyond the three present companies be
reviewed with this Office prior to its initiation.

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VIT. BEYOND "DOING BUSINESS": PEAK HoN- COERMENT SECURETY
BY PRIETARIES ACTIVE EMBER 31

1974

-As described infra, MHMUTUAL (the insurance and pension complex)
has invested heavily in both domestic and foreign securities markets.
Its portfolio runs the gamut of notes, bonds, debentures, etc. But
other proprietaries have also used this investment route as a method

of increasing capital and insuring adequate cover.

For example, KMJAGGERY is a Delaware corporation located in
Washington, D.C., which purchases general merchandise in a manner
which cannot be traced to the United States Government. It provides
covert procurement for the Office of Logistics (CIA). Its total
purchases from January to September 1974 were $437,500. It has no
outside commercial business and has five employees. Yet, as of
December 31, 1974, that entity had invested $149,000 in time deposits.
Another covert procurement mechanism under this same Office is
SPECIAL STOCK ACCOUNT #3. “This is also a Delaware corporation with
an address in Baltimore which purchases arms, ammunition, and police
related equipment in a manner which cannot be traced to the United
States Government. The company has no employees and is managed by
Headquarters officials in alias. As of December 31, 1974, that

entity had invested $37,500 in a certificate of deposit.

LPJACK was a travel service which was sold recently to an Agency
employee at the time of his reitrement, who had ostensibly owned the
firm before but in fact only managed it for the Agency. As of |

December 3L, 1974, that entity had invested $35,000 in a certificate

HY 50855 DBocld:324293532 Page 125

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of deposit.*

LPDICTUM/LPSPICE was an investment company which was dissolved.
As of March 31, 1973, it had invested $100,080 in Petrolcos Mexicanos,
S.A. Mexico.

. HBSANDSTRAP is a Delaware corporation located at Washington
National Airport which has provided secure air support for Agency
employees and classified pouches between Headquarters and other
“Agency facilities in the United States. The company has accepted
commercial charter flights from non-Agency customers for income and
cover purposes, As of December 31, 1974, it had invested $144,000
ina certificate of deposit.

QRTROW was a former proprietary and is now an institute located
in Europe which "seeks to influence and encourage moderate and pro-
democratic youth leaders and government officials concerned with
youth and higher education.'' According to the Agency

. The Agency withdrew its support from the institute in
1974 and turned over all assets to the management of
the organization. In addition, the Agency provided
surge funding in the amount necessary to enable the
entity to exist in reduced form for about one year
during which time the management would attempt to
arrange private support.

As of March 31, 1972, that proprietary had invested $50,000 in time
deposits.

LPMANTLE is part of the WUTACTIC complex managed by the Cover

and Commercial Staff to provide operational support mechanisms for

DDO foreign operations. It is a Delaware corporation which is used

* The Agency today uses this firm for the purchase of airline tickets
for travel in support of sensitive projects. It is estimated by the
Agency that CIA business represents about 30% of the gross airline
ticket sales of the entity on an annual basis.

HW 50955 Doold:32423532 Page 126

-~ 97 -

to collect the proceeds from the sale of Agency proprietary entities

and to refund such proceeds to the Agency. At December 31, 1973, its

total assets were $650,220 and its total liabilities were $633,897.

Total stockholders equity was $16,323. It has no employees. As

of December 31, 1974, it had invested $400,000 in a convertible subor-

dinated debenture from the sale of a company and $45,440 in notes

receivable. Another company in this TACTIC complex is LPGLITTER.

It is a Panamanian company which was used as an investment vehicle

for funds reserved for new commercial operations requiring Agency

investments. The investment project was terminated and all funds were

returned to the Agency. The company has no employees. As of December
. 31, 1973, it had invested $246,757 in a Security Note of Pepsico

Corporation, N.V. ,

LTUQUEST was part of the air support complex of the Agency proprie-
taries, Substantial assets of it were sold and the entity dissolved.
As of December 31, 1974, it had invested $215,000 in a certificate of
deposit.

LPPANDA/LPMET is part of the management and accounting complex.
As of December 31, 1974, it had $470;000 invested in time deposits.

BY 50955 DBocld:32423532 Page 127

- 98 .

SCHEDULE 1
PEAK NON-GOVERNMENT SECURITY INVESTMENTS BY PROPRIETARIES
ACTIVE AS OF 31 DECEMBER 1974

PROJECT /ENTITY TYPE INVESTMENT DATE AMOUNT
MHMUTUAL See Portfolio
LPPANDA/ LPMET Time Deposits . 12/31/74 $470,000
TUQUEST Certificate of Deposit 12/31/74 215,000
LPTACTIC/LPCLITTER ; Security Note - Pepsico
Corp. N.V. _ 12/31/73 246,757
LPTACTIC/LPMANTLE - Convertible Subordinated
Debenture from Sale of
Company 12/31/74 400, 000
Notes Receivable 12/31/74 45,440
QRTROW Time Deposits 3/31/72 50,000
ABDERRICK/HBSANDTRAP Certificate of Deposit 12/31/74 144,000
LPDICTUM/ LPSPICE Petrolcos Mexicanos,
S.A. Mexico 3/31/73 100,080
LPJACK Certificate of Deposit 12/31/74 35,000
KMJAGUARO/ KMJAGGERY Time Deposit ©  : 12/31/74 149,000
KMJAGUARO/ SPECIAL
STOCK ACCT. #3 Certificate of Deposit 12/31/74 37,500

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VIII: MHMUTUAL: THE INSURANCE-INVESTMENT COMPLEX

a) A BRIEF HISTORY

MHMUTUAL is a complex of insurance companies, most of which
are located abroad, operated by the Agency to provide the following
services: ,
a) veinsurance of aircraft damage or liability risks
ostensibly insured under commercially issued policies
(for cover);

b) extending term Life insurance, annuities, trusts and
workmen's compensation for independent contractors
and agents working for the Agency who are not entitled
to U.S. Government benefits;

c) handling escrow accounts* for agents;

d) limited operational support activities, L.e., holding

real estate formerly used in Agency operations abroad; **
and

e) investing in domestic and foreign markets to obtain
earnings to fund the above.

MHMUTUAL was created in 1962 to provide death and disability bene-
fits to agents and beneficiaries when security considerations pre-
clude attribution to the U.S. Government. The losses during the
Bay of Pigs prompted its establishment. From sixty-seven (67) to
seventy-three (73) companies operated originally under the Domestic
Operations Division and later a board of directors controlled by the
Office of General Counsel. This internal board of the project made

investment decisions.

* Escrow accounts are established when an agent cannot receive his
full payment from the CIA without attracting suspicion. The funds
not paid to the agent go into escrow accounts and are invested under
MHMUTUAL. .

_** The CIA's domestic real property holdings appear as Appendix E.

HW 50955 Docld:32423532 Page 128

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Lawrence Houston, retired General Counsel of the Agency, testi-
fied that his office instigated the establishment of MHMUTUAL. This
was because his staff would be the repository of all problems related
to the death or disability of a person during the course of his
Agency work. These problems were all handled in what Houston called
a very "sketchy way" and this was simply undesirable from all
points of view. Moreover, when the Agency went into air proprie-
taries on a large scale there were certain risks which simply

could not be underwritten: commertéially.

So somewhere in the late 1950s or around 1960,
I think I was the one that posed that we might
organize our own insurance entities. I had a
couple of lawyer friends deep in the insurance
business, and I suggest I talk to one of them,
and he promptly said, well, it so happens that
I have a couple of offshore insurance entities
that I can make available to you. And we took
a look at them. It looked like they were or-
ganized properly for the purpose. They cost
practically nothing. They were just shells.
But they could be filled out. So if my recol-
lection is correct, we acquired these two as the
first step in what became the MUTUAL project.

Simultaneously, the decision was made that if the Agency was going
to maintain such a capability,

they had to have enough body and backstopping so
that if a suspicious foreign intelligence outfit
tried to investigate, they would stand up under
investigation as would any normal insurance outfit.
In other words, they had to appear'to have finan-
cial stability, they had to have names that could
stand up and answer questions, and in other words
appear to be in the normal business of writing the
type of annuities (and) insurance, death. and dis-
ability.

This concept was totally organized originally then under the Domestic

Operations Division. DOD eventually recommended that the complex

HW 50955 Doold:32423532 Page 130:

- 101 -

be transferred to the Office of General Counsel. This occurred,
and it remained there until Director Colby decided in conjunction
with Mr, Houston to transfer for operational reasons to the Cover
and Commercial Staff. ‘This was done because CSS had the expertise
and manpower. Moreover, Mr. Colby took exception to the Board
concept because he felt that it diluted the Line responsibility by
which all other projects were administered.

As the number of insurance companies grew to cover increasing
demands placed upon the Agency by more agents, the general fund
which was retained to backstop all the needs of these companies
grew, and "the question was what to do with your money." Houston

explained
_ Now, insurance companies are normally in the business

of investing their funds, and so this being the normal

thing, it appeared to us necessary to preserve the nor-

mal appearance of these insurance companies to carry

on investment programs for the funds involved, and

there were a variety of investments to be considered.

You could go into U.S. Treasury Bonds, notes and bills,

but actually, from the point of view of insurance bus-

iness practice, this was very unusual. It would be

very, very unusual in the insurance field. Usually

some of them would have some investment in bills, notes

or bonds, but it was a very small part of their portfolio,

and to put it in nothing that that we thought would be

a dead giveaway. So we first went in the direction of

having a general portfolio somewhat similar to the nor-

mal insurance company's investment practices, and I

originally recommended that we have the board of direc-

tors so that we could have available and demonstrate that

we had available the best competence the Agency had in-

ternally to pass judgment on what to do with their money.

Because of shifts in the stock market which made it not look as
promising as it had been during the 1960s, MHMUTUAL went into

certificates of deposit, the Eurodollar market and the bond market.

HW 50955 Docld: 32423532 Page i131

~ 102 -

It was decided to invest, however, only in Eurodeollar bonds that

were ‘guaranteed by the American parent company.” It was thought
that “they were a pretty secure investment." On occasion, “when

we got the advice of our economists on the DDI side, we took some
government paper that they considered -- foreign government paper
that they considered really a good security." Houston became the
central figure in this investment scenario: |

More and more I continued on this Board of Direc-

ters as giving basic policy advice. We had long
discussions on the areas of discussion, what to stay
away from, what to go into, what it looked like as

far ahead as they might think they could see. . And

more and more I would make the individual decisions

on my own in light of their policy guidance and with
the information which my staff in MUTUAL could get from
the many friends they now had in various underwriting
and investment places on an unwitting basis, who just
thought they were customers. For instance, on the
Eurodollar bonds, they were dealing with several houses
who just thought the fellow was another investor coming
into them and would get very detailed and on the whole
pretty good advice, which often we could check from
inside through some other of our sources. . . .Profits
from primarily the interest operations were very pro-
fitable, and these built up over the years quite rapidly
and were brought into the insurance funding identified
as profits for future possible use,

It was always recognized that a policy decision might
be made at any time that we had funds excess to the
valid backing up of our underwriting, which would be
brought back into the government for such disposition
as might be appropriate at that time.

In terms of actually providing insurance in the aviation and
maritime field, a study would be conducted in each case where in-
surance was required. If it looked as though normal commercial in-
surance would handle it, as was the case with most of Air America's
needs, then the particular entity would go ahead and procure the nor-

mal commercial insurance. If there was something peculiar in the

operational setup that preclud d commercial. companies from accepting

HW 50955 Docld:32493532 Page 132

~103-

the risk or if there were security problems, then it would be

handled through MHMUTUAL.
What we would do when it came to aviation and
marine, we would go to one of the cooperating
companies and see if they wanted the insurance
for their own accounts, because we had made
arrangements that if there were operations
security problems in any one claim, that they
could handle the investigation so it wouldn't
be a problem if they wanted to take for their
own account. If they didn't want to take it
for their own account or they didn’t want to
take it all for their own account, they might
then seed back to us what they didn't want.
And it would be then underwritten technically
out of MUTUAL's account, although they would be
the ostensible insurers. ,

Several of the aviation entities, other than Air America which
dealt almost exclusively with regular commercial insurance com-
panies, did nto feel quite secure with regular insurance. They
turned to MUTUAL. MUTUAL would in turn offer the risk to one of
the cooperating insurance companies. If they would take the risk,
they would then negotiate the premium with the. proprietary. tf
they did not want the risk, "then they would seed back to us and
we would take the portion of the premium that should come back.
Usually it if went through a company, they would take a small
underwriting premium to pay their costs, 3 percent or something
like that. And the rest of the premium would go back in MUTUAL,
if they were actually taking the risk."

In 1970 the Inspector General conducted a survey of the secur-
ities held by MHMUTUAL. He concluded that the project seemed to

be secure in its operations in the fields of insurance and invest-

HW 50955 Dacldi3242354532 Page 133

-104-

ment. The IG locked at the investments from a security (i.e.
cover) point of view in terms of MHMUTUAL’s operational support
function. His concern was that each time MHMUTUAL bought a
safehouse, for example, there was the possibility that audio
surveillance of the house by the Soviets would lead to a dis-
covery of the purchase mechanism used by the Agency. He rea-
soned that, therefore, the purchase of such items by the com-
plex was operationally unsound because it exposed the entire
complex to compromise if a foreign intelligence agency tracked
back the transactions through various corporations. According

to the Inspector General, no funds of MHMUTUAL were used for
specific projects. What would occur, however, was that a project
would transfer funds to the complex which would then disburse
them as needed through an appropriate entity. This method left
him with major reservations about MHMUTUAL security when it sup-
ported sensitive clandestine operations. Thus, MHMUTUAL's pro-
vision of cover, funding for active operations, and record owner-
ship acquired for sensitive operations was deemed inappropriate
and, accordingly, the IG proposed separating operational sup-
port activities of MHANVIL from the instrumentalities of MHMUTUAL.
It was to be restrained to the purposes for which it had been

established in 1962*

* During the course of the IG inquiry no instances were discovered
where MHMUTUAL or its funds were used to influence foreign stock
markets or currencies. The Committee has also found no such
instances.

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~105-

At the time of this 1970 review by the IG, MHMUTUAL held a
surplus of $9 million. It also earned income from sources sup-
ported by public taxation. It appears from the questions that
were raised at the time about briefing congressional committees
on MHMUTUAL that this was not done, providing a situation where
an organization with assets of $30 million has been created and
was operating without oversight knowledge or approval. Moreover,
because MHMUTUAL was no longer a project after its removal from
the Domestic Operations Division, there was no annual allotment
and no annual operational review.

Houston indicated that MHMUTUAL had been operating "before
we told our committees any detail. I think it was mentioned as
a problem that we had to make arrangements to cope with insurance
problems fairly early on. But the fact that it was a business
and a business of this substance was not done for some time, My

recollection is there was not deliberate avoidance; we just didn’t

get to it." On the question of lack of annual project. review,
Houston commented that this was "technically correct." But, he
added,

As a matter of practice I would say that MUTUAL was
more carefully reviewed in some respects than almost
any other project in the Agency in the sense that we
had the bookkeeper inside the project who was a finance
officer and bookkeeper. The project published at least
monthly reports in detail which went not only to me but
to Colonel (L.K.) White (the Comptroller) and the
Director. These were very detailed reports which often
raised questions which went back for answers.

HW 50955 Docld:32423532 Page 135

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The Inspector General was invited in, according to Houston. In
addition, the Finance Office kept its own books. in the proprietary
accounts branch on MUTUAL. Such reviews were done, he said, “on a
constant basis.”
“We were very conscious of the amount of money in-
volved and the possibilities of someone trying to,

someone yielding to temptation and trying to do
something with all of this money.

b) THE CURRENT STATUS

The project currently consists of twenty-six (26) companies
of which five (5) are domestic. All of the clients of MHMUTUAL
are under non-official cover.** The Office of Finance has indi-
eated that the current net worth of the project is $18 million
which is the resule of retaining earnings. It was originally
capitalized in 1962 with $4 million. A Washington, D. C. lawyer
(MHANVIL) is currently the investment manager and he provides day-
to-day direction. MHANVIL is a sole proprietorship proprietary

of the Office of General Counsel. Total assets are currently

*k MHMUTUAL itself is only for covert non-staff officers of the CIA.
In essence, it only works for what would broadly be described as
“agents, those not entitled to participate in the CIA retirement
plan or in the Civil Service Reitrement Plan. They are primarily
foreigners, and usually DDO employees. Those individuals who were
formerly known as contract agents and who are now known as independ-
ent contractors also participate in MHMUTUAL. In the case of most
agents, the CIA contributes 7 percent and the agent contributes
7 percent, in keeping with CIA practice for regular employees. In
cases where the agent is well along in years and contributions from
‘the Agency and the agent would not provide enough funds to capital-
ize an annuity, the Ageney provides the initial capitalization; how-
ever, approval of this must come from the DDO.

HW 50955 Docld: 324234532 Page i136

$31 million, most of which are held outside the U.S. The companies
do not write insurance in the United States, but rather reinsure
with cooperating companies who then sell the risk to the CIA for
a percentage -of the premium. The policies are written directly
abroad. Each of the U. S. companies pays little tax and a pro-

prietary auditing firm audits the books of MHMUTUAL. This method
of self-insurance enables the Agency to funnel money where needed
in any of its project. categories. currently, 60 percent of the
investments are in Eurobonds, 20 percent in off-shore time deposits
in U.S. banks, and the balance is in common stocks, debentures .
and commercial paper of various types. For example, the current
breakdown is: | _

$7 million in time deposits abroad;

$2.4 million in Common Stock (at cost); ~ =

$20.8 million in Eurobonds:

$1 million Eurodollar convertible debentures;

$.5 million in short-term commercial paper overseas; and

$.2 million in domestic debentures.

The performance: of the MHMUTUAL stock portfolio is noted at
this’ juncture. ‘Comparisons of cost against market value for the
years 1970 through 1975 are given first. Following that are the
gains or losses on the sales of stock for the years 1963 through

1975.

HW 50955 Decld:32493532 Page 137 —


_ _ : Shel 7 AIPTF

- 2°3,
- Bae ~
2 :
STOCK PORTFOLIO PERFORMANCE
Comparison of Cost Against Market Value
Year Cost Market Value aE
1970 $ 3,792,804 $ 3,689,294 aa
1971 1,123,651 1,069,301
1972 2,969,403 2,872,557
1973 . 2,650,904 1,242,915 7
1974 2,440,686 . 699,422 |
1975 2,440,686 ; 876,507 ;
ean
bee:
. te
Gain or (loss) on Sales of Stocks poo
. _ I
i
5 Year Gain or (loss |
1963-1969 $ 197,348.15 —
1970 (79,910.64) cr
1971 118,943.90 Paanioe
1972 . 310,346.37 hereon
1973 150,447.03
1974 (172,796.04}
4975 -9-
Total Gain . $ 584,378.77
RECEIVES FROM
NOV * iis
Lil
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ere eigen

bea el
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“109 ~

Included as Appendix D is an in-depth list of common stock
purchases from 1971 through September 30, 1975. In addition, there
are schedules of portfolio sales from 1964 through 1974.

A look at the Project MHMUTUAL Conselidated Balance Sheet for
December 31, 1974 will give some idea of the scale as of that late
date. Current assets (cash in banks, premiums receivable, advances
receivable, accounts receivable, client notes receivable, rent
receivable, interest receivable, and investments maturing.in one
year) totaled $6,910,891.00. Investments (time deposits, bonds
and commercial paper, and stocks at market value) totaled
$25,342,772.53. Fixed assets (real estate and furniture and fix-
tures) totaled $73,084.12. Other Assets (prepaid insurance, recoverable
deposits, and other prepaid expenses) totaled $32,682.00. These
combined for Total Assets of $32,359,430.45.

As usual, the Project was subjected to an extensive audit for
that year. .

The audit included site examination of books and financial
records of 12 of the instrumentalities administered by

Agency-owned management firms as well as review and evalu-

ation of related records, controls, and procedures at
Headquarters. Five instrumentalities administered by

Agency-owned management firms are located abroad and

will be audited later. Audit of the other. six instru-

mentalities administered abroad by foreign accounting

companies was limited to examination of financial reports
and such other documentation as was available at Head-
quarters. These latter examinations provided us reason-
able assurance that Agency resources, totaling about one
percent of project accountability, are adequately pro-
tected.

That audit concluded that MHMUTUAL "continue(d) to be admin-

istered in an efficient and effective manner and in compliance

HW 50955 Docld:32423532 Page 139

-=110-

with applicable Agency regulations and directives." Prior audit
reports had commented on the need for a revised administrative
plan and in accordance with these reports, the audit noted, a
“new plan was approved in March 1975." In addition, "(m)inor
administrative and financial problems surfaced during the audit
were discussed with MHMUTUAL officials and resolved." The audit
noted that total income for that year {from interest, premiums,
gain or loss on sale of securities, dividends, rentals, profes-
sional fees, gain on foreign exchange, gain on sale of property
and from miscellaneous transactions) was $4,113,590.00. The
total expenses for that year (allocation of premium income to
reserve for claims, interest, salaries, rent, accounting fees,
taxes, loss on property write-off, legal and other fees, communi-
cations, depreciation and amortization, travel, equipment rent,
real estate expenses, pensions, dues and subscriptions, directors
fees, entertainment, and miscellaneous) were $2,459,260.00. These
combined for a net income of $1,654,330.00.

The current Chief/Central Cover Staff has focused on MHMUTUAL
in a number of interviews with both the Rockefeller Commission |
staff and our own. He has suggested that the real question for
MHMUTUAL is what should its role and shape be after the termina-
tion of the large air proprietaries. One of MHMUTUAL's original
purposes was to provide reinsurance for Air America, CAT, Southern
Air Transport, Inter-Mountain Air, and the other air proprietaries.

With their passage, a reorganization and redefinition is needed.

HW 50855 Doacld: 32423532 Page 140

- ee -

‘ As to the issue of safeguards against misuse of project funds °
or insider information by the Agency, the Chief CCS has told the
Committee that compartmentation, the honesty of the Chief of. CCS,-
and display of the portfolios to appropriate congressional commit-
‘tees are what have prevented or will prevent such abuse.

Houston agreed jwith the three safeguards outlined by the CSS

Chief. However, he ladded a fourth:

When we were investing in stock, I would have the

list of stock, the portfolio, reviewed by our con-

tract people, and if I found we had any contract

relationship with any of the companies involved, we'd

either refuse to -- Well, a couple of times our invest-

ment ‘advisor recommended a stock which I knew we had

big contracts with, and I told the board no, this in-

volves a conflict of interest. We won't touch it.

And if we had anything from the Agency contract office

that indicated a relationship, we would either sell

the stock or wouldn't buy it.

‘ . . .

: Houston believes that the wmpley should continue in some form.
One reason is that "assets are few and far between." The acquisi-
tion of a board of directors, the establishing of accounts, basic
credibility and relations with the jurisdiction in which the entity
is located are not easy things to do according to Houston. This
creates the "tendency, once you've got something that looks good,
to hang on to it."" He would recommend in this regard that the
‘Agency be constantly. forming new companies and phasing out old ones
on a rotational basis so that the same complex would not remain
for security reasons.

me ee
a“

HW 50955 Docld:32423532 Page 141

37
=

So it's not easy but I still think that they
should make the effort. [The Chief ccs] knows
my views on this pretty well, and we're all
worried about the security of the damn thing.
But we don't know another way to do it.

He believes that the current method while not perfect is the best
that can be devised. The problem, of course, is that the genera-
tion of funds for these companies must. literally be shown to be
legitimate and non-governmental if the beneficiaries are to be
protected. Consequently, if the government were to create an
office that would funnel money to these companies without the
‘benefit of investment, this would create the risk that a trace~-
back investigation by a foreign power could discover that the
entity is being funded by the U.S. government. Houston closed by

> saying that he would invite any controls that Congress would choose

to put on the mechanism in terms of insuring propriety.

Ce Chief of CCS hin ech chara Heny he
AP AUAIMN ER, “side pirat ble. ” ande zo an atta
afer sunhch sn rurale elena. (1-20.76) Tres

HY 50855 Docld: 32423532 Page 142

- FRB -

F,
ee THE AIR PROPRIETARIES

Lawrence R. Houston, the former General Counsel of the Agency,
was involved in the establishment of the first set of proprietaries
.of the Agency back in the late 1940's and early 1950's. As noted
later on in section 10, page , Houston has concluded that .
proprietaries should be a mechanism of last resort. He asserts
that the Agency learned this in part "the hard way and almost all
of the lessons involved probably came out one way or the other in
connection with a major aviation proprietary in the Far East.

Others ‘had there own special problems, but I think the Air America
complex had pretty near everything."

The theory of the acquisition of Air America in 1949 was denial
of the assets to the Red Chinese. The CIA first arranged advances
to the company to keep them going when they were running short of
cash in 1949. These advances were used up and were actually credited
to the purchase price eventually. The airline at that time had
been organized by General Claire Chennault and Whiting Willauer.
“It was a joint venture with the Chinese Minister of Transport and
was called Civil Air Transport. Houston described it as follows:

This normal aviation organization, this would have no
meaning at all, was completely at all, it would have
not standing in international law, aviation rights, or
any of that. But it worked for what .they wanted, which
was to take supplies up-country into inland China and
then to bring back whatever cargo they could get commer-
cially: tallow, hides, bristles, all that sort of trade,
and then they traded that off for their own account. And
for awhile the operations was fairly successful, the C-47's
and C-46's.

To finance this activity and to facilitate the trading of produce,

their lawyer, Thomas Corcoran, had organized a company. That company

was known as C.A.T. Inc. In addition there was a Panamanian

HW 50955 Docld:32423532 Page 143

far
-

corporation which was involved that did most of the funding.
There was also an envy known as the Civil Air Transport "to further
complicaté the picture, at this time Chennault and Willauer were
also negotiating with the Chinese CNAC, for the takeover of their
_planes and equipment." Chennault and Willauer came to the Agency
in connection with that operation in the Spring of 1949. At that
point the Nationalist Chinese were being "squeezed down south by
the Communists and they were really backing down toward Shanghi,
restricting their area of operation and consequently the produc~-
tivity of their commercial venture." Chennault and Willauer indi-
cated to the Agency that unless they got .help they would have to
go out of business. -_
The agency held a series of meetings in which it was determined
that it had a need for some air transport for some of its operations
o) particularly involving arms and ammunition and consequently the |
Agency needed a contract with someone.
And so we entered into an arrangement, I think in
about September of 1949 whereby we would advance
them, the figure of $750,000 sticks in my mind,
against which we could draw for actual use of the
planes at an agreed on rate. . . . And we did draw
down, I think, all the flying time and expended the
$750,000 between September and about January, at which
time we suspended any further payments or draw-downs.
I think the money was exhausted.
Chennault and Willauer came to Washington about January or
February of 1950 and through a series of negotiations, the Agency
agreed to advance them more funds, taking at the same time an option
to purchase the assets of Civil Air Transport, with the liabilities

left to their account. Any unused portion of the advances were to

be credited to the purchase price. They then operated through the

lan

HW 50955 Docld:32423532 Page 144

v3

, =
Spring of 1950 under this arrangement and Chennault and Willauer
“oame in in the Summer of 1950 and said again they were in desperate
straits for funds." Once again a series of meetings was held at.
which the prognosis was that the operations in the Far East would
have a continuing need for secure airlift and also, there was a
general estimate that the loss of this airlift to the Chinese
Communists would give them a considerably greater advantage than
then possessed because they had almost no airlift of their own at
that time. “The Agency then made the decision that they would
‘exercise the option given there was no objection otherwise."

The Agency felt that it was necessary to get the concurrence
of the Department of State. Frank G. Wisner, at that time the
Head of the Office of Policy Coordination (OPC) which was respon-
gible for conduct of covert actions as opposed to clandestine in-
cy telligence, and Mr. Houston visited Mr. Livingston Merchant, who

was Assistant Secretary of State for the Far East.
He and I went to see Mr. Merchant and explained the
situation. And Mr. Merchant reminded us. that it was
basic U.S. policy not to get the government in compe-
tition with U.S. private industry. But under the parti-.
cular circumstances, in particular as there was really
-no.U.S. private industry involved in the area, and they
agreed it was important to divide the assets to the
Red Chinese. State would go along on the understanding
that we would divest ourselves of the private enterprise
as soon as such a divestment was feasible, and all of
the circumstances that might obtain.
Of course, the divestiture of these entities did not actually

occur until 1975. And, indeed, some of the entities still as yet

have not been divested. Mr. Houston noted, however, that:

es

HY 50955 Doelad:324233832 Page 145 —

4¥

We did not disregard that guidance because after
very considerable use of this asset during the
early ‘50's, there was a question of whether to
continue it, and the matter was taken up in the
National Security Counsel. And Allan Dulles, as
Director, opposed that we continue the ownership
and control of the assets of Air America, as it
then was known including the subsidy as needed.
And there was a subsidy at that time. It was
about $1,200,000 per year.*

This consideration by the National Security Counsel as to whether
or not to continue to retain this asset and Mr. Dulles' recommenda-
tion that it be retained occurred in 1956.

During this period of time the business of the air proprietary
consisted almost entirely of Agency cargo carriage under contracts
which were usually using a military designation. The company was
not organized, according to Houston, to fly common carriage and ~
had no status in the international air business.

a) The evidence indicates that during this period of time, there
were two struggles going on. One was where control should lie in
the Agency and the other was the policies to be applied to the
operation of the company itself.

The struggle within the Agency ranged all the way from
sort of quiet management discussions as to what was good
management, to sometimes rather vociferous auguments of
whose in charge here. And the operators always said,
‘well, we need to call the shots because it's our operation.
; And this is what we were running into all the time,

of red hot operators opposed to what we would consider good
management. ,

¥AYfouston indicated that there had been a subsidy running to the
entities since 1949. "$1.2 million represented about the maximum -
subsidy given until, I believe, about 1958 was the turning point,
and from 1958 0n, there was no subsidy as such that went into it."
The reason for that, of course, was that. the air complex had become

"money-making."
f™

HY 30955 Docld:32423532 Page 146.

om

7s"
- 2

The management of the air proprietary at this time was in the
OPC structure and was therefore responsive to operations. An

example of some of the problems which were created as a result

of this is the acquisition in August of 1950 of the entity.

Houston was participating in the negotiations. He had been in-

vited ta do so by Frank Wisner.

OPC was a curious organization. Determined as being
attached to the Agency for quarters and rationing
with policy guidance from State, which was an impossible
situation. Very nice fellows were doing the negotiating
with Wisner -- Frank Lindsay and Chad Breckinridge, who
is now dead. Frank Lindsay has been head of ITEK and
quite unknown to me, when they made the agreement to
purchase carrying out the option, they gave the vendors
the right to repurchase at any time within two years.
And I thought this was-really inconsistent with our whole
position. And during the next two years they negotiated
out that repurchase agreement and in its place substituted
an agreement to give them a first refusal, if we were to
dispose of the airline, That first refusal plagued us for
years. They use to make all sorts of extraordinary claims
under it and it was never exercised and eventually it was
sort of forgotten when Chennault and Willauer died. It

- ran to them personally, whether it ran to them and two
others personally, and they all are dead now. But this.
shows a part of the learning curve, which was. thing we
were going through. It also became clear that the organi-
zation of the airline was really impossible, it's sort've
semi~formal partnership with the Ministry of Transportation
or the Ministry of Communications (of the Nationalist Chinese
Government) .* ; ;

That basically describes the preliminary situation from the period
1950 through 1954. [It was in 1954 that George Doole first came
onboard as a consultant. Doole and Houston went to the Far East in

the summer of 1954 to observe the operation. "George went out there -

"The Nationalist Chinese had by this time retreated to Taiwan, they
maintained a maintenance base tied to Hainan "Fhe maintenance base -

at that time was on a LST and a great big steel barge. And we brought

the LST and the steel barge up to Kiaoshung, and it was really extra-

ordinary what a maintenance job they did on what was almost impossible
facilities. I went down and was enormously impressed by the difficul-

‘ties and how well they had overcome them, ml Jilaysti'.

HY 50955 Doecld:32423532 Page 147

rs

YG |
. -

specifically to look at the organization of the Airline.” In this

regard, it is noted that at the time the Agency purchased the Air-

‘line it had formed a Delaware corporation to buy it which was first

called the Airdale Corporation, counsel for which was Brackley
Shaw. Shaw and Boole were both very concerned about the technical
organization or lack of it, of the operation. Doole demonstrated .

to Houston

to my satisfaction that it was an absolute situa-

tion and that no-one out there had the slightest

understanding of the problem or what they were up

against, or wanted to do anything about it (in terms

of airline management).
As a result of this Shaw and Doole planned the organization which
they thought was necessary for the future of the operation. Hugh
Grundi was installed as-President of the corporation by the end of
1954.. Management responsibility internally was given to Lyle Shan-
non "who was a management type, although he was assigned to the
DDO, ‘or by that time it might have been the DDP." .

The upshot of this review by the Agency was that the theory
of running the airline was that it would be managed by manage-
ment to be responsive to Operations. "but not managed by Opera-
tions.” . |

In order to improve its cover "the Chinese not only were wil-
ling, but at that time wanted it to be the airline that showed the

flag of China." . This was done on overt records through Civil Air

Transport Company, Ltd., which was thé subsidiary of Pacific Corp-

‘oration. Pacific Corporation held title to 40 percent of the

HY 0855 Docld: 32423532 Fage 146

A equity in the corporation and. 60 percent of the equity was osten-
sibly owned by the Chinese, who gave deeds of trust to the Agency
'.for their shares. This overt arrangement demonstrated for purposes
of international law that the company was majority-owned and con-
trolled by Chinese. The Chinese continued to press the company
to get into the international common carriage field. The company
had several DC-4's and began modest operations between Hong Kong,
Taipei and Tokyo. They graduated to DC-6's, and it was at this time
that the Agency first got into the question of competition with U.S.
industry. Northwest was then flying to Tokyo and Seoul and to
Manila, and was trying to obtain rights into Hong Kong. Don Nyrop
had noted the Agency's interest ‘in this area when he had been
Chairman of the Civil Aeronautics Board in the late 1940's and the
c
eo; early 1950's. Houston told the Committee:
He (Nyrop) became head of.Northwest, a very tight
manager, a very capable fellow, and he used to.
complain that we were interfering, we were taking
passengers off his airline, and we would go to him
and say, we have to keep the airline in this busi-
ness because the Chinese say they need an international
airline. They're not ready to start their own yet.
And it is necessary to its overall cover status as a
going commercial concern.
By 1959 Mr. Nyrop was complaining that the Agency was doing too much.
Finally Nyrop decided: to complain to the Civil Aeronautics Board and _
the Agency agreed to place it before that Agency for a decision.
A meeting was held with the entire Board, at which time Nyrop was

able to make his case "for the fact that he was a private industry,

he. should not be interfered with by government competition.”

-

HW 50955 Doold:32423532 Page 149.

43
Ed

a The Agency explained its situation, the cover need, the Chinese
pressures, and the fact that they were keeping the carriage to
what they thought was a minimum that appearances could stand.

And it ended up by one of the members of the Board

turning to Nyrop and saying, Don, you ought to be

glad that you don't have a really good, reliable

‘competitor in there. He said, If you were being

competed with by private business, you'd have real

headaches. You ought to be real glad that it's not

worse than it is. And that's the end of that.
Houston conceded that some passengers were going on basically CIA
planes instead of Nyrop's Northwest planes. The impact, however,
was minimal. Moreover, the CAB in this proceeding was advised of
the.dilemma. They did participate in discussions with both the
Agency and the particular business entity that was making the com-

4 plaint, and the CAB, after hearing both sides, "came down on the

4 .

side of the Agency after making a reasoned qudgment.''

By this time the airline's commercial international business
was not making money. A maintenance contract work, which was being
done at Taiwan, however, was “normally a money~maker , and this was
primarily, although not exclusively, with the U. S. Air Force."™*
There were management problems in terms of the maintenance

aspects of this operation. This originally stemmed from the fact

* The LST and barge which ‘had previously been used for maintenance
purposes became inadequate. Therefore the Agency built a plant

in Taiwan "that is now there but has been recently disposed of to

E Systems, and a very good plant it was."' E Systems’ role in the
acquisition of proprietary assets is detailed later.

oO

BW 50955 Docld:32423532 Page i560

that individuals out in the field are not particularly astute at
costing their contracts. Doole gave excellent advice in this area.
Moreover, Doole was quick to advise when an operation is bordering —
on not being responsive to the demands of good management. Houston.
cited one instance when Doole replaced a controller in the corpor-
ation who was very able but "had his own ideas of bookkeeping and
controls." Doole insisted that the corporation put in bookkeeping
and controls completely consistent with U. s. CAB and FAA prac-

tices. And of course the maintenance contracts with the military

i

|

were audited constantly by the military audit teams that were
right in the plant. .
By this time the Agency had organized an exemption from the
Contract Renegotiation Board.on the grounds that if the renegotia-.
tion personnel became too involved in the business, they might
recognize that this was not 4 straight commercial operation and
discover ‘the fact that the CIA was involved. The Agency went to
the head of the Contract Renegotiation Board and got a letter from
the Department of Defense asking for an exemption on what the
Agency and the Department considered “perfectly legitimate grounds."
Indeed, there was a basis for exemption in the Renegotiation Act
if the business was entirely overseas, which was the case with this
eirvline. And so, the exemption was granted on! that basis. The .
Agency was concerned, however, by the fact that it had in principle
made a type of profit, over 40 percent on these Air Force mainten-

ance contracts, that might have well have been the subject of re-

HW S0855 Dackd: 32423532 Page i451

rN

go.
-B-

negotiation, had it not’ been subject to the exemption. "So the
question was what to do about it. And.finally, we made a volun-_
tary repayment against part of the profit on that contract to the
Air Force."

As noted previously, the commercial airline aspect of the
operation was not making a profit and in fact operated mostly at
a loss. Indeed, there were periods of time when the C-46's
and C-47's cargo carriers were very busy on either CIA contracts,
the Korean War, Diem Bien Phu, and other paramilitary aspects.
There would be periods in between these activities when there was.
nothing for the airlines to do. Nonetheless, the airline was still .
saddled with expenses such as crews' salaries and maintenance of
the aircraft which sat on the ground.

So George posed, and we finally organized, the stand-
by contract, which was an apparent military entity on
Okinawa. It was our entity, but it had a military
designation. I can't remember the name for it. And
that entity contracted with Air America for so many
hours of cargo stand-by to be available any time on
call, and that they would pay so much for that capa~-
bility being maintained. . . so that is. how we kept
the subsidy going to maintain them during periods
when there was not profitable flying.

Another area of concern was the question of the relationship
with the Internal Revenue Service. From the very start, the company
management was informed that they would be required to pay the
appropriate U. S. taxes, and while there were the usual business

arguments about whether certain items were appropriate for taxation

and whether certain deductions should have been granted, the rela-

HW 50955 Doocld:32423532 Page 152

S/
~~

cs tionship maintained with the IRS was basically a normal one.
Houston recalled that in the mid-50‘'s the company, Air America,
‘received a notice that they were going to be audited by the IRS.
Company officials came to the Agency and indicated that this might
pose a problem in terms of security. The Agency went to the Com-
missioner of the Internal Revenue Service and indicated that
they would like to have the Commission conduct the audit and have
the audit done by a team on an unwitting basis to see what they
could find out. “We thought it would be a good test of the secur-
ity of our arrangements."
They put a very bright young fellow on and he went in-
to it. They came up with discrepancies and things that
would be settled in the normal tax argument, corporate-
IRS argument, and all of these were worked eventually,
and then we went to this fellow and said, Now, this
- was owned and backed by the CIA, the U. S. Government.
ry
- What was your guess as to what was happening?
And he said, Well, I knew there was something there,
and I thought, what a wonderful asset it would be for
the Russians to have, but:I came to the conclusion that
it was Rockefeller money.
Thereafter, the IRS would be notified if it began to conduct an audit
on an Agency proprietary, and the audit would be discontinued.
As the operations of Air America developed the problem of large
cargo carriers arose. In the. early days of its operation the airline
was using C-54's, which had an extremely limited range but were able.
to perform notwithstanding under demanding circumstances. Discussions
proceeded during that period about modernizing the equipment and
the Agency, through the proprietary, bought DC-6AB's, a conversion
of the DC-6, which had large cargo doors installed in it. They,

2)

NW 50955 Docld:32423532 Page 153 x

Gar,
a

a) however, did not maintain any jet equipment at that point. This
cargo system which they developed was getting heavily into a mil-
itary air transport contract system. The system was first known
as MATS, and then it became MAC.

They got MATS contracts, and Air America got these,
and these were very good to keep a constant utiliza-
tion at a good rate, the MATS rates were usually good,
because the policy was not to do competitive bidding
for the lowest bidder because then you got the poorest
service, but give good rates to the carriers, and then

require the carrier belong to the Civil Reserve Air
Fleet.

In 1956 MATS changed its policy and required that bidders on
the contracts to be certificated. Of course, there was no. real way. .
that Air America could become certificated and so the Agency decid-
ed to purchase Southern Air Transport. While it was technically
4. a separate entity, not involved in the Air America complex, it was
actually an integral part from the management point of view, in that
all management decisions were centered again in George Doole and.
the advisory team in the Agency. MAC eventually also decided to
require that bidders not only have to be certificated, but had
to have equipment qualified for the Civil Reserve Air Fleet.and
this. meant jet equipment. . As a result. the Agency went into the
acquisition of Boeing 727's. Mr. Doole eventually convinced Boeing
that they should modify the 727 to enlarge the ventral exist, which
was already in the plane, so that the plane would then have a large
airdrop capability. Boeing did so modify the plane and it proved

entirely useful for these purposes. "So the theory was that the

_

HW 50855 Docld: 32423532 Page 154

A

?

™

53
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727's would be used on MAC contracts to be available on an over-
riding basis if needed for some major national security operation.’
They were used, usually when they had spare time. |
To my recollection, they were only called off once,

off the actual contract time, and this was for a
possible use which didn't go through. But the White
House asked if we had the capability to move some-
thing from here to there, I think from the Philippines
to somewhere in Southeast Asia, I don't recall, and so
they sent word to management that they wanted a plane
available at the earliest opportunity at Clark Field.
. They pulled one of them off the MAC contract and had
it available, I think ready to go, in twelve hours,
all set for the operation. And the operation was
never called. But it showed what the capability was...
And what they had to do was get substitute service
for the MAC contract. ,

During the late 1960's several Chinese airline enterprises started,
both of them on quite a small basis, but one of them which became
CAL had official backing. This occurred while the CIA's proprie-
tary was still flying under the flag of China. With the establish-
ment of these indigenous Chinese nationalist airlines which would
fly these routes, the Agency began to plan ‘reducing its inter-
national carriage work. It decided it would keep the MAC contracts
because this did not bother the Chinese. There was in fact no com-
petition in this area. But plans were started to reduce the inter-
national common carriage. This Agency proprietary, Civil Air Trans-
port Company, Ltd., which had been organized in 1954, had the right
in international air auditing’ to negotiate for air routes. That
was the entity that therefore did the common carriage. Thereafter,

Air America did the American contracting, followed on then by

Southern Air Transport, due to its certification. Southern was

HW 50955 Docld: 32423532 Page 155

Et

a brought on to perform the MAC and MATS contracts with planes
leased from Air America, which included 727's. Southern Air
Transport actually owned one 727 and leased two from Air America.

Houston noted that it was at this time that an internal de-
cision was made "we probably couldn't justify this major airlift
with the big jets, and so we started giving rid of them. See, they —
had no utilization to speak of down in Southeast Asia. A couple of
supply flights went into India, and I think we used prop planes for
that, to my recollection.” So the Agency began to phase out. the
727's. This, of course, led to the decision to divest the Agency
of Southern Air Transport and eventually of Air America.

Internal management problems were assisted in 1963 by the
establishment of an executive committee of the board of directors
of the Pacific Company, Air America and Air Asia. The overt board
of directors in New York City passed a resolution organizing an
executive committee, which included Mr. Doole and two’ other directors.
Covertly, the Agency put with that executive committee some of its
representatives. This. resulted in management and the Agency being
represented on the executive committee of the Board, and permitted
the viewpoints of management, Agency and the operators to meet in
this executive committee to consider policies and make actual deter-~
minations and give guidance to the company. Houston indicated that

this mechanism was extremely effective in controlling the company.

HW ROS55 Docld: 324273532 Page i156

<a

_

So I think for the last, oh, fifteen, eighteen

years, the proprietary management system was on

the whole pretty effective fromthe Agency point

of view. I think we knew what was going on. I

think we were able to get things up for decisions,

and if we couldn't resolve them at the staff level,

we would take them up to the Director for decisions; .

quite different fromthe early days in the early 50's

that I described, and the operators at least made the

claim that they had the right to call the tune.

During this period of time Operations people

were getting themselves involved in the acquisition

of aircraft and which were getting awfully damned

expensive at this time, and separate projects were
going after some of this expensive equipment without

consideration of what might. be available elsewhere

to the Agency by contract or old aircraft. And so
_the Director of Central Intelligence set up EXCOMAIR,

of which I was Chairman, and had representation from

both the operation and management and finance out of .

the Agency, to try and coordinate the overall control

and acquisition and disposition of aircraft.

Indeed, a February 5, 1963 memorandum entitled "Establishment of
Executive Committee for Air Proprietary Operations," noted that
the Committee was "to provide general policy guidance for the man-".

agement of air proprietary projects, and review and final recommenda-

tions for approval of air proprietary project actions." Houston

indicated that EXCOMAIR “was sort of an amorphous group" which tried
to focus on the question of whether it reviewed the needs first and
then came up with recommendations on the operational solutions, or
whether the operators came up with a solution and put it through .
EXCOMAIR. Houston noted that EXCOMAIR ‘worked on a very informal
basis because "I knew all these people well, and I said. "Let's get

together and sort these out.''' He indicated that EXCOMAIR was

BY 50955 DBocld:32423532 Page 157

SG
-e-

reasonably effective in getting overall coordination. It was re-

sponsible for making a thorough inventory of all the equipment
‘that the Agency had in the aviation field, and by and large was
able to keep track of who needed what and whether an asset was
available that could take care of a problem without the necessity
of acquiring a new asset.

According to Houston, a general shift in thinking at the
Agency occurred between 1968 and 1972 on the desirability of their
holding substantial contingent capacity of airlift. The records |
seem to indicate that Mr. Houston apparently convinced the Director
in the early 1970's that the capacity should no longer should be
retained. Houston commented on this assessment as follows: .

Through what knowledge I had of the utilization

1% of the various assets, it seemed to me that util-
igation, particularly of large assets, that is,
heavy flight equipment, was going down to the point
where there was very little of it. Consequently, we
couldn't forecast a specific requirement. Such re-
quirements as you could forecast were highly con--
tingent. But I also remember a couple of times ,
putting the caveat into the Director that with a
changing world and with the complications in the
aviation field, once you liquidate it, you could
not tebuild, and so you ought to think very, very
carefully before getting rid of an asset that did
have a contingent capability.

BY 50955 Docld:32423532 Page 158

~129-

X:_ISSUES POSED, CONCLUSIONS, AND RECOMMENDATIONS

-eeaenenennenenetentetnte tonto ansunnitanrannennnnpsanpttotetenttattrtr eet rete? TP eCePee Tene eNPRCeRCRe

The preceding sections provide a general picture of the nature,
extent, purpose, function and problems of proprietaries. Not unlike
other areas of our inquiry, the issues raised were not simply black
and white. They were, rather, grey in nature. During recent years,
particularly at the time of the Vietnam War, serious questions were
raised about this proprietary capability. Much of the accompanying
criticism stemmed from a lack of understanding of their role in the
scheme of both United States foreign policy and intelligence. Some of
the criticism stemmed from the suspected entrance of some proprietaries
into areas where they were in apparent comfétition with legitimate
business interests, such as the airline industry. It is not unusual
that there would be misunderstanding since much of what would have
explained the proper role of these entities had to remain secret for
innumerable reasons. “But the Committee has not been stymied by that
same embargo and has had a broad look into these operations.

In general, these mechanism have been operated with the utmost .
concern for legality, propriety and ethical standards. What slippages
have occurred were in the field and generally in the area of air opera-
tors, not management. Moreover, their use and past expansion was a
direct result of the demands placed upon the Agency by Presidents,
Secretaries of State and the policy mechanisms of government. This is
particularly true of the large air proprietary complex which was used
to support paramilitary operations in Southeast Asia. The only
exception to this is the investment-insurance complex which was

established on Agency initiative to fill a pressing need.

HW 50955 Docld:32423532 Page 159

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A. An Overview

Using broad authority under the National Security Act of
1949, the Directors of Central Intelligence have established
Government~-owned business enterprises, foundations and quasi-busi-
ness enterprises ("notionals") to serve a variety of intelligence

and covert action purposes. Chief among those purposes have been:

1) Cover for intelligence collection and action projects.
Commercial firms established in foreign countries have
in the past and continue to provide plausible reasons for the
presence of CIA case officers. “Agency- funded foundations (e.g.,
the Asia Foundation) served as conduits of funds to scholars and
groups doing research supporting U.S. foreign policy positions.

2) Extension of Agency influence and. information network in
-- e.g., an air or shipping firm -- requires banking, insurance,
and other services that entail support, communications, and inti-
mate business relationships with the bonafide American and foreign
commercial world. In turn, this entails at a minimum the clearance
-and access of outside top management into Agency business; the
relationship on occasion can entail using the Agency's commercial
contacts for information or assistance.
3) Provide supporting services for covert operations.
In paramilitary operations, airlife and sealift by Agency-owned
carriers has many advantages -- flexibility, ability to implant
photographic equipment and other sensors, etc. CIA agents, engaged
in hazardous business ordinarily uninsurable, can obtain commercial

insurance at standard or subsidized rates via MHMUTUAL, a conglomerate

HW 50955 Docld:32423532 Page 160

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of some 26 CIA-owned companies. In country locations where
physical contact with the nearest CIA’ station is not operationally
discreet, proprietaries can provide pay outlets and other adminis-
trative services for CIA personnel and agents. On occasion, firms
based in locations with permissive corporate laws and regulations
~~ Liechtenstein, Panama, Delaware -- can engage in many activities
unrelated to their charters. For example, insurance firms can
acquire real estate surrounding targeted embassies on a non-attri-
buted basis.

4) Actual conduct of covert action. In establishing the
"radios" (Radio Free Europe and Radio Liberty) in the 1950's,
CIA acquired a means of directly influencing populations behind
the Iron Curtain. These, of course, were eventually disposed of
and placed under the aegis of the Department of State, but related
enterprises, such as the book distribution program, which had
operated under radio sponsorship, continued within the Agency frame-

work.

5) Outlets for private investment. The Agency would deny
that this is a purpose of proprietaries. Agency officials state

that the standing policy is to prohibit the investment of operational
funds of the CIA into private fields without explicit DCI authoriza-
tion. Actually, the existence of proprietary enterprises which,

on occasion, return sizable profits, affirms that private investment
has indeed been a widespread Agency policy. Moreover, the Agency
specifically has authorized MHMUTUAL to act as an institutional in- |
vestor for its own and any other Agency proprietary. So the question

| really is one of definition and shading.

HW 50955 Docld:32423532 Page 161

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B. Size of U.S. Financial Stakes

The size and variety of U.S. Government financial stakes in
CIA proprietaries has already been described in great detail.
The attached Table I gives an overview of proprietary income and
expenditures over the years. Some 450 proprietaries have been
ereated over the years with 20 presently active (See Table II.)
The largest sixteen proprietaries received about 80% of U.S. in-
vestment (i.e., subsidies). Accordingly, most proprietaries are
shown to be small-scale operations. In many cases -- the so-called
"notionals" -- the overseas proprietary actually conducts no business
at all; it simply has a commercial charter, staff, and cover arrange-
ments for Agency collection and action projects.

Table I also shows that proprietary income consists of a mixture
of CIA subsidy and income. In some cases, the outside income is
from sources outside the U.S. Government income -- e.g., Air America
has received income for aircraft maintenance of KLM airliners in
Southeast Asia. But for the most part, proprietary income is in the
form of "cross-orders," from CIA and other Government Agencies.
For example, the CIA paramilitary project in the Congo placed orders
for aireraft engines and pilot services with Intermountain Aviation,
Inc. As an example of order placed by other U.S. Government Agencies,
AID contracted with Air America to carry rice shipments in Laos.
In this sense, many proprietaries are analagous to what are called
“intragovernmental funds" or "industrial funds" in traditional U.S.
Government budget and accounting terms.

Table I shows, and as we remarked previously, that compared
with earlier years, the size of proprietary expenditures has markedly

declined. The potential for future expansion is nevertheless present.

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Indeed, new proprietaries have. been formed within the last
several years.

In terms of U.S.. budgetary impact, Table I indicates that
proprietaries do not add much new capital to CIA available resources
-- i.e., while they have a very large expenditure level and momentum
over the years, the “cross-order" phenomenon means that most of
these expenditures originated in CIA and other U.S. Government
appropriations and that net profits generated by outside business
or investment have been relatively small. On the other hand, another
way of interpreting the figures is to observe that nearly half the
$1.6 billion gross income of CIA proprietaries has been supplied
by sources outside CIA.

. Table II shows the pattern of incéme, expense, and net U.S.
investment for the twenty largest proprietaries now active, review-
ing their financial experience in the twelve months preceding

June 30, 1975, or the indicated reference date. The two biggest
proprietaries, Air America and MHMUTUAL, are seen to dwarf the
others, Air America will be phased out by June 30, 1976, ending
CIA's owned airlift and returning an estimated $20 million to the_
U.S. Treasury. MHMUTUAL will continue.

Today, the CIA operates 45 major proprietaries, of which 25
are in the process of liquidation. The 16 biggest proprietaries
did a gross total of $4 million business in 1975, compared with an
average volume of $75 million annually in the heyday period of
proprietaries, 1967-1973, exclusive of CIA subsidies. On the subsidy
front, the contrast is equally striking: no net subsidy in_1975 vs!
$26 million annual subsidy in the 1967-73 period, Put differently,
if these sixteen biggest proprietaries had operated throughout

HW 50955 Derlte: 3a9530 lfage pexiod at the level of gross income of all

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kinds realized in 1975 ($4 million), the total gross income would
have aggregated $116 million. Actually, the CIA reports that
for this for this period gross income aggregated art $1,606 million.
| By this measure, CIA's biggest proprietaries are shadows of their
former selves; their annual gross income of $4 million is about
one-fourteenth of the average gross annual income of $55 million
during the 29-year span. Shrinkage would be even greater if these
figures were adjusted for the effect of inflation.
The chief impact is decline of the bigger air proprietaries.
The Agency estimates that of some $761 million of outside income,
at least $658 million was generated by Air America ($559 million)
and Southern Air Transport ($99 million), in the period from incep-
to 1975. As late as 1974, these two airlines were garnering some
$50 million in outside contracts. With their disposal, total CIA
proprietary annual outside income in 1975 therefore shrinks to ~
the cited $4 million level. Most of this residual is represented -
by MHMUTUAL, the insurance investment complex, where Agency invest -
ment are generating an outside income of about $3.5 million annually.
In programmatic terms, this contrast of today and yesterday
reflects the decline of paramilitary operations in Southeast Asia.
Large volumes of outside orders by Defense and ALD, along with
sizable levies by CIA components and some maintenance and passenger
income from commercial operations, had been generated by a covert
war. In turn, thése operations had their echoes in Agency air
support for the Congo, Cuba, and other areas. Looking toward the

future, will new air proprietaries be established? The CIA thinks

HY 50855 DBocld:324293532 Page 164

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not -- but the matter is not resolved as discussion below indi-

cates. Ultimately the program question is whether there will

be future U.S. involvement in covert wars -- and whether, if so,

some substitute for ClA-owned air support can meet the operational

requirements of secure, well-maintained local aircraft in place,

with responsive schedules and capacity to gather a Limited amount

of signals and imagery intelligence. The Chief of CSS ventured

the possibility that third-country assets could be used. Another

possibility is use of U.S. military aircraft, overtly or "sanitized".
One thing became clear: CIA sees itself as entering a different

era of proprietaries. It has rejected the long-held doctrine of

"stand-by" capability -- i.e., the notion that it is worth investing

considerable capital and operating resources in airlift, sealift,

and other assets primarily targeted toward contingency requirements.

Instead, assert the Agency representatives, CIA is keeping today's

and tomorrow's proprietaries strictly centered on current operational

tasks. The test of retention is the utility of a proprietary in

carrying out assigned roles instrumental in approved Agency projects.
This concept can be examined by listing the twenty major proprie-

taries which the Agency says will survive into the post-1976 time

frame:
: Latest l2-mo.

Code Name ’ Earned Income “($000)
LPBERRY $43
LPROE/PIKE 139
PDPORTAL 5

BASTE ($1,250 subsidy)

BASIC ( 1,126 subsidy)
PDLEDGER 102
PDDYNAMIC 35

TENURE ($199 subsidy)

TERRACE € 76 subsidy)

HW 50955 DBocld: 324234532 Page i654

7 -136-

VWCADENZA {( 36 subsidy)
MHBOUND | € 432 subsidy)
KMJAGUARO/ JAGGERY 809
QRMYSTIC/CYNIC ( $10 subsidy)
WUDIRK : 0
XIPHOID ($ 191 subisdy)
BACH ( 50 subsidy)
KNOX { 50 subsidy)
LPROCUS 22
LPBYZAS/8B 2
LPPANDA 21
CHAIR/A ( 4 subsidy)
REMEDY 21
MHMUTUAL (consolidation of 21 firms) $3,560
LPSUGAR 34 (plus $35 subsidy)

The above listing covers only the 20 biggest proprietaries

which currently operate and which will survive liquidation.

excludes 25 major proprietaries currently operational but being

phased out -- such as Air America and other airlift.

What does the whole picture of currently operated proprietaries

look like? How many and by what major types?

The Numbers of CIA Proprietaries, by type,
as of July, 1974 are:

a 71
Operating proprietaries
(includes 21 props. in MUTUAL insurance complex)

Non-operating proprietaries 38
Devised facilities 31
Devised facilities/Notionals ("DFN"'s) 61
Subtotal, externally registered 201
Notionals --~ no external registration;
Identity and financing wholly
within CIA control 215
Grand total, current proprietaries 416

HW 50855 Doeckd: 3243354532 Page 166

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Generally, the notionals have increased in number by about

30% since the current CCS chief's takeover of Cover operations

in 1967. This reflects a policy of increasing the number of .
cutout arrangements to increase security -- i.e., reduce likali- .
hood of outside discovery of the identity of agents or case
officers working under cover of the end-point notional by intro-
ducing intermediate pepeonats for payments or identity backstops.

What does this ouimi tell us about basic distinctions of
one type of proprietary from another? First, it indicates that
external registration divides the pot in half. Those which have
some form of legal standing with U.S. (State, local) and foreign |
corporate regulatory and tax authorities are subject to external
governmental scrutiny. This occasions additonal expense and man-
power to assure that in all respects this group of proprietaries
behaves in accordance with local law and commercial expectations.
The second group -- the notionals -- exist only as names on doors
and phone directories and stationery, with backstopping for identi-
fication provided by Agency switchboards, mailstops, and check |
issuance. . . —

The next level of distinction is within the class of Legally .
registered proprietaries: those which carry on a4 commercial in-
come~ producing operation and those whieh are simply cover arrange~
ments, with at ‘most a bank account and an attorney backstopping
calls and mail. The latter are shown in the table above as
"devised faciltiies" and “DEN''s

Within the class of commercial, “income--productive proprietaries,

there is a distinction between those which are wholly dependent upon

HW 50955 DBocldi324234532 Paye i67

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CIA income in the form of orders placed and/or subsidies; and
those which have mixed outside and inside income.

Even for those with mixed income, it is possible over the
years to distinguish those which have outside income wholly within -
the U.S. Government (i.e., a mix of CIA-derived income and income
from other Government agencies) and those which have both U.S.

Government income and income from private contracts.

C. Visibility in the Budget

Accountability to the President and Congress depends in budget
review upon the extent to which the Federal agencies’ budget
review upon the extent to which the Federal agencies' budget re-
quests provide enough information to make possible well-formed
judgments. Therefore, Circular A-11, issued by the ‘Office of Manage-
ment and Budget, prescribes the financial schedules and analytical
and explanatory supporting data which all Federal agencies must
provide in their budget submissions, consistent with the Budget and
Accounting Acts of 1920 and 1950 as amended.

The Central Intelligence Agency regards itself as subject to
these prescriptions. The Agency limits its application of this
principle, however to provision of such A-11 materials as OMB and
the Congress ask for.

With regard to proprietaries, this policy has resulted in
near invisibility of proprietaries in the CIA budget submission.
Circular A-1l requires agencies to provide schedules and narrative

' for each public enterprise or intragovernmental fund. The utility

of such data is to reveal all sources of funding, purposes and

HW 50955 Docld:32423532 Page 168

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levels of expenditure, and at least approximate indications
of performance through comparisons of past and proposed funding
by activity. As applied to proprietaries, the CIA, perhaps,
should have been providing a whole family of schedules for the
proprietaries which actually do business (i.e., excluding
“notionals.")
Then, there is the question of the program impact of propri-

etaries. Table I indicates that proprietaries in fact have been
. heavily involved in CIA intelligence collection and covert action.
None of this is shown in the CIA budget submission. Yet a bona~
fide policy review of the budget requires programmatic judgments
of the necessity and appropriate use of proprietaries in overseas
areas. °

The Angolan question has brought into sharp focus the role

of the CIA's Contingency Reserve. All U.S. aid to forces in
Angola came from this fund. The only place in the budgets of CIA
where proprietaries have taken on even a limited visibility is in
those years when supplemental financing was needed to establish or
' strengthen a proprietary. The budget then shows, tersely, that
for a past year or for completed portions of the current years
that Contingency Reserve drawdowns had been made for such purposes.
For example, one past budget showed a certain’ amount for "RFE,"
meaning a subsidy for Radio Free Europe, but providing no justifica-
tion materials. In turn, this practice reflects the unwritten,
post-hoc nature of the Contingency Reserve financing process -- in
effect, an Executive Branch supplemental in which Congress is in-

formed after the OMB has acted. The budget does not normally indi- ~

cate Agency intentions to create or establish a proprietary in the

BW 50955 DBocld: 32423532 Page 169


" <140-

budget year ahead. For any other Federal agency, the notion
of establishing a new publicly owned enterprise without advance
notice to the Appropriations and substantive committees of
Congress would be proscribed.

For the small-scale proprietaries, those which require small
subsidies to get underway, CIA is able to launch them without
supplemental financing -- i.e., within its regular budget --

and, therefore, these remain completely invisible in the Agency

budget submission.

D. Some General Considerations

-a.. The relationship of utility to size: The evidence estab-

lished a dilemma faced by CIAplanners who recognize that propri-
etaries can sometimes be most effective operationally when they
are large; indeed, as in Laos, there can be a thrust toward enormity
imposed by the very nature of the operation. The dilemma is that
large size conflicts with deniability: In areas of the world or
types of activity where there is little commercial appeal or few
operating commercial firms, where would large-scale enterprises
get financing but from the U.S. Government? Laotion operations
actually could not be covered in the end. The experience suggests
that proprietaries may have limited utility for paramilitary opera-
tions in the future.

b. The-factor of competition with private enterprises. Do
CIA proprietaries of the income-producing. class unfairly compete
with private U.S. businesses, both with regard to their Government

financing and their secrecy? Is the utility to the Government of

HW 50955 Docld:32423532 Page i170

~1l41-

such a kind and of such magnitude that CIA proprietaries should
be retained regardless of their competitive impact? Generally,
the CIA believes that CIA operating proprietaries do not compete
with U.S. private enterprise because they tend to do things which
the latter are not equipped, motivated, or staffed to perform.
For example, CIA proprietaries purchase weapons and foreign arma-
ments and technical devices; conduct security clearances; purchase
real estate; insure uninsurable risks; train foreign policy forces,
run airlines in remote areas or on commercially unattractive
routes. Would private enterprise do any or all of these things;
It is true that private enterprise does a lot of ‘similar activity
under contract to the Government, including highly sensitive con-
tracts for CIA in technical intelligence collection and research
and development. If CIA scrapped its proprietaries and coopted
private firms, suitably cleared, would this be more desirable in
“policy terms? In economy? In operational flexibility?

¢. Relative scarcity of commercial and official cover. The
continuing push of CIA for notionals reflects the scarcity of U.S.
Government official cover in many areas of the world, the develop-
ing desire of U.S. companies not to cooperate. .

Some question concerning profits have been raised. Does pro-
prietary profit constitute a significant add-on to the resources
available to CIA? How is such profit treated in the budget? How
is it controlled? How can the Congress.(or the President, for that
matter) be sure that proprietary profits are not siphoned off to)

accomplish projects not countenanced by the regular CIA budget?

BW 50955 Docld:32423532 Fage i7i

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First, profits (defined as net income to a proprietary after

coverage of operating expenses) are relatively small. Even in
the days when the most profitable air proprietaries were at full
swing, the most that any single firm netted was $3.9 million (Air
America in 1967). Over the entire period 1947-1975, total pro-
fits have been $50 million, an average of about $1.6 million
annually, for the 16 biggest CIA proprietaries. And in these
years, a net loss was sustained three times -- $2.5 million
in 1971, $0.5 million in 1973, and $0.3 million in
1975. Looking to the future, after liquidation of the air pro-
prietaries has been completed, there is forecast to be only one
profitable proprietary: MHMUTUAL a complex of insurance, reinsurance
and, and escrow-holding companies which derives most of its pro-
o fit from investment portfolios. MUTUAL's net income in 1974 was
$1.8 million and this general magnitude of profit is expected in
the foreseeable future.

As for treatment in the budget , there is both a policy and
‘procedural aspect. The policy of CIA has changed; in February,
1975 the General Counsel of CIA ruled that profits of proprietaries —
and proceeds of liquidation must be returned to the Treasury as
miscellaneous receipts and cannot be used to augment the Contingency
Reserve or otherwise be applied to CIA operations. This ruling
overturned the practice of the past which, on the few occasions
where profits were not applied to augment net worth of proprietaries
--i.e., plowed back into the enterprise or investment portfolios--,

was to apply proprietary net proceeds to the Contingency Reserve -

for later release to operations.

WW 50955 Docld:39493532 Page 179

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The budgetary presentation and review procedures only par-
tially focus upon proprietary profits. MUTUAL's profits are
invisible in the Agency budget; they are taken into account and
. subject to scrutiny only within CIA; operationally, the DDO annual
operational review has the most detailed grasp of MUTUAL at the
Agency review levels. A stadard set of public enterprise fund
schedules, as prescribed by OMB Circular A-11, would he appropri-
ate for making MUTUAL visible in the Agency budget. Other commer-
cial proprietaries should show these schedules as well. The
Agency has indicated that the Comptroller is working with DDO and
BDA to develop a new style and content of budgetary presentation
and review procedures for CIA proprietaries in future budgets.

To what extent can these new procedures prevent abuses of
proprietary profits? To what extent do they preclude the need
for legislation in this area? What form of Congressional oversight
is needed here-- at what point should Congress exert control?
Improvement of visibility in the budget of proprietary resources
and provision for review of the major proprietaries as a regular
part of budget review by CIA, OMB, and Congressional Committees
would seem to preclude most of the dangers of abuse. On the other
hand, there is one type of abuse for which additional Congressional
scrutiny and safeguards may be needed: the possibility of a small-
scale, high-risk covert project directed by the President or DCI
which is not covered by the regular appropriation but financed by
proprietary profits. No foolproof preventives can be designed by
law: or regulation; nevertheless, the possibility of such abuse or

avoidance of Congressional review can be minimized by requiring

HW 50955 Docld:32423532 Page 173


~L44~

that all CIA proprietaries have an operational charter approved

by Congress which forbids launcing activities by proprietaries

or using their funds which are contrary te the charter. This
internal CIA standard would probably strengthen the existing
requirement that covert action projects be certified by the
President and flagged to Congressional Committees. At present,
MHMUTUAL has such a charter (not reviewed or set by Congress) which
restricts MUTUAL to insurance operations. This charter was
established in 1974 (called an "Administrative Plan") and must

be formally amended before the Chief of Cover Staff will authorize

use of MUTUAL resources for other missions.

D. Private Investment by CIA.

The authority of the Agency to engage in private investments
and its general policy ambivalence on this matter already have been
noted. Two types of general as well as budget issues are presented,
one the inverse of the other: 1) Could or should CIA engage in
investments which could accumulate funds outside the budget process
and hence be available for operations that have not public scrutiny
outside CIA? 2) Is CIA investment policy too restrictive in regard
to bank deposits? Specifically, should CIA place large amounts of
money in private banks without charging interest? Some 20% of its
annual $1.2 billion of appropriated and advanced funds goes into
private deposit here and abroad, with year-end balances of about
$150 million and average deposits considerably greater. The banks
selected get an interest or investment bonus. Their selection is
non-competitive, rooted in historic circumstance, albeit in insti-—

tutions that have shown themselves flexible and responsive in

WY 50955 DocTd:329493532 Page i74

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providing the Agency services. Much more investigation is

needed here. and. we encourage the new oversight committee to

study this issue in greater detail than we have been able.
Probably this is one area where exclusion of the General Account-
ing Office from CIA audits has had an unfortunate effect: Whether
or not there has been abuse, there is no outside reviewer of a
complex set of financial records and relationships and conse~-
quently the question of confidence in the Agency's role in this
area may have been eroded.

What is the future for proprietaries?

Discussion on these questions already has been covered in part.
No new proprietaries are in formation or planned. This past fis-
cal year, 1975, one new proprietary was created to purchase a site
for the new Location of the New York CIA base; it serves as a
real estate holding company or lessor for land and building.

The main provison for new growth is the plan of some years
standing for establishment in MHMUTUAL of several corporate "shells"
-~ legally constituted and registered companies that do very little
commercial business but which can be adapted to various new CIA
missions. To adapt to these new missions, as noted, would require
CIA to amend the MUTUAL Administrative Plan. But this could be
done quickly; the existence of the shells avoids the leadtime of
creating new corporate entities, with all the complications of
local laws and risk of exposure.

While CIA proprietaries are small today compared with yesterday,

they are so largely for administrative reasons-~- i.e., responsive

HY 50855 DBocld: 324293532 Page i175

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to Executive Branch direction. In this sense, there is no

reason in law, although there may well not be another era or

set of occasions when CIA will find proprietary expansion to

be operationally desirable. The Congress should be a partner

in the process of reviewing such expansion, if it should occur,

by providing for changes in the charter process. Another approach
is the setting of substantive guidelines for proprietary operation.
This approach is typified by the post~Katzenbach guidelines that
prohibit CIA operation of tax-exempt foundations.

Lawrence R. Houston, the former General Counsel of the Agency,
was intimately involved with all of the proprietaries for his
entire tenure with CIA. Consequently, his views have been invalu-
able to the Committee in reviewing and evaluating the history
and the role of these mechanisms. In the course of a far-ranging
interview with the Committee Houston concluded that proprietaries
“should be the last resort for use to backstop Agency activities."
He grounded this opinion on the fact that:

they are cumbersome. To be properly run they take’
many, many man-hours of many, many different parts of
the Agency, so they are expensive in man-hours. There
are built-in difficulties in running what appears to be
a normal business for operational purposes. There's
really a built-indichotomy there that leads to a contin-
ual conflict with policies. And due to the number of
people involved, there is a security problem on the
old grounds that security doesn't go by the mathematical
increase in the number of people. It goes geometrically
as to the number of people, the security risk.
This assessment seems correct based on all the evidence.
The current Director of Central Intelligence has insisted on

the streamlining of such operations, and is keenly aware of the

potential for abuse. (See appendix F). It is, for example,

MW 50955 Docld:32423532 Page 176

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the current written policy of the Agency that "to the degree that
domestic proprietary or cover companies are required, a clear
justification will be developed as to the relationship of their
support of our overseas operations."
In the one area of continuing large-scale activity, the
investinent complex, the Director has moved to insure propriety
even in an area where there is no evidence that any illegal con-
duct has occurred. The current policy, established as of
June 1975 is:
Project MHMUTUAL will be operated in conformance with
appropriate legal restrictions, Arrangements are being
made for the briefing of the appropriate Congressional
committees. Particular attention will be given to
avoiding any possible conflict of interest situations
with firms with which the Agency has contracts. Parti-
cular concern will also be exhibited over possible
improper influence on the stock market or stock dealings
through the investments involved in MHMUTUAL.

The Committee is mindful of the potential danger inherent in. such

operations. Therefore, it recommends that the review of this

and other similar projects by the appropriate oversight Committees

be stringent in the extreme.

The disposal of proprietaries has also generally proceeded
along legal and ethical lines with more than due concern for con-
flicts of interest. Most notable in this spectrum of actions was
the degree to which the Agency tried and did in fact avoid any
conflicts of interest when it sold off Southern Air Transport.
Such internal vigilance no doubt should and will continue. More-
over, with the establishment of . permanent oversight committee,
the CIA's job in this regard will be made easier because it will

be able to report on its dealings on a regular basis and avoid

criticism.

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‘HW 50955 Doocld: sobatal Page 161

Me morandum of. Law

Legal Authority to Dispose of a Proprietary

January 1974

Annex A_


DOES HE CIA POSSESS THE LEGAT AUTHORITY
- TO SELL A WHOLLY-OWNED GOVERN-
MENT AIRLINE WITHOUT RE COURS ETO
THE PEDERAL PROPERTY AND ADMINISTRATIVE.

RECE

many sensitive Support activities

°

the de ‘facto c owner of the corporations.

still a classified fact.
in support of

impossible if United State

.

admitt

i : corporation i

i
ay

mW 50955 DocId:32423532 Page 18 “3 “
ge 132 — CNB T +

ERO M SERVICES ACT OF 1949, AS AMENDISD ?
Mer 90.1505 o gy | PACTS
~ There ex sist two airline corporations wholly ovned by the a

United St ates Government, which corporations were purchased by, and

tles in the furtherance of the national security

the Central Intelligence Agency on behalf of the United States Government
* Notwithatanding, that ownership
The activities and missions of these corporations
£ the national securt ty of the Uni ted States would have been

Ss Goverament ownership had been offic ially

ted. Within this context it is the statutory responsibility of

are undex the dixect c control of, the Gentral Intelligence Agency. Owners
“of the corporations was acquired by means of appropriated fonds Expendea
“by the Agency under its confidential funds authority, the procurements ‘thus

being made outside Of the Federal Property and Administrative Sexvices

Act. Both corporations were created by the Agency to assist st in fulfilling

its statutory responsibilities and, ever the years, both have engaged in .

Sa.

of the United: States. Jt has been widely weported ip wnclassiticd media ‘that

qote

is.

of Central Intelligence to protect the overt commercial posture of these

and the classified nature of certain of their activities.’ Now -

the Director has detecmined that the corp poration s axe no longer weauired .

* . . . :

by the Agency in the discharge of its responsibilities; that they axe excess

to Agency requirements, and he has directed that they be disposed of

«

either by sale or liquidation.

co To UL, STATUTES oe
‘The F Federal Property and Administ rative Services Act of 1949,.

£

vas amended, (20. U. S. C. A. 47L et seQ-> her zeinafter referred to as the

Bet) is in general the controlling statute insofar as ‘Government’ property

“as s procured, used and disposed oft. 3 - oo ve

It is the intent of the Congress in enacting this — 7
legislation to provide for the Government an economical |
and efficient system for (a) the procurement and supply
_of personal property and nonpersonal services, jncluding
: . *° yxelated functions such as contracting inspection, storage, ©
; 3ssue, specifications, property identification and classifi-
“+ gation, transportation and traffic management, ‘esteblish-
ment of pools or systeras for transportation of Government
personnel and property by motor vehicle within specific
areas, management of public utility services, repairing
-and converting, establishment o£ inventory levels, establish-
ment of forms and procedures, and representation before -
. Federal and State regulatory bodies; (b) the utilization of ,
available property; {c) the disposal of surplus property; and
(d) records management. 40 U.S.C.A. 471. |

As an executive agency, tue Central Intelligence Agency is within the purv

of the Act (40 U.S.C.A. 472; 481), but along with 4 number of other agenc’

and activities, it wad cxomnpted trom | the” Act:

Re FRO Congress, departments, agencies, corporations
i beet :
po Moa. persons exempted from provisions

| CCE go ists | 4

“EW sopss Docld: i Ag425532 Page 183

Bap mee

H
1

HW 5095:

; Nothing in this Act shall impair or affect any *
- authority of a,

- he
we: . one

_ (17) the Central Intelligence Agency; - +.
40 U.S.C. A. 414(17). |

.
a

The Act's legislative history provides an insight into the breadt

of the exemption and, to a limited dégree, Congress’ intent for giving it.
; Special exemptions from the act.-—-This subd- >

‘ "section exempts from opexvations under the acta
number of ectivities requiring special treatment.
Chief among. these are programs for price support,
stabilization, grants té.farmers, endforeignaid; | a
procurement procedures under the Armed Services oe
Procurement Act of 1947...3; the stock-piling of ©
critical materials; the national school lunch program;
the Housing and Home Finance Agency ‘With respect

‘to the disposal of residential property; the Atomic

Energy Commission; and the Gentral Intelligence

Agency. a

 ‘Ttis not intended by these exemptions that those oe
. administering the agencies or programs listed shall
be free from all obligation to comply with the pro- | °
visions of the act or from all jurisdiction of the rn
Administrator. On the contrary, it is expected that ——-
they will as far es practicable procure, utilize, and
dispose of property in accordance with th
of the act end the regulations issued thereunder,
so far as common-use items and adminis~

particularly
_- trative supplies are concerned, Likewise, it is intended
that the Administrator shall have full authority, with

agencies ox programs mentioned, .to

@ provisions

. respect to the
sy FROA ake surveys of, and obtain reports on, property and
PY xoperty-management practices, to cooperate in tee

establishment of inventozy levels, and to repoxt

REG:

OCF an I ae “th the otovist
excessive stocking, in accordance with the provisions
OA cof section 206 (a) (i) and (2).

JG . and
3° "

DoclTd: 32423532 Page 164 : On Pact : . 7
wbates ie i)

i

t
i
A
i

a . oo
One axthority o

of the two airline corpora

or ES SS ieee oc itn
ear

En other words, to the extent that complia once with
the act and submission to the Jurisdiction of the .
‘Administrator will not so ‘impair or affect the authority!

TT... Sar Salar NA ARINSOIE: TAENESN PUSAN S
of the several agencies to which the subsection applies

as to interfere with the operation of their programs, the
act will govern. Any disputes that arise can be scttled

by the President under the authority to prescribe policies
and directives vested in him by section 205 (a). U.S. Code
Gongressional Service, 1949, Vol. 2, Ps 1504, (emphasis
added) - ; Doe red _

7 as = +
y bs Central Intel ices e As ency which complete’

Ay
eh

application of the Act would "impair or affect" is clearly, the, Agency’ S. °

“authority to expend confidential funds.

The sums made available | to the Agency may
be expended without regard to the provisions of law a
and regulations relating to the expenditure of Gov ern-
ment funds; and for. objects of a confidential, extra-
.. ordinary, or emergency nature, such expenditures to ”

2 - be accounted for solely on the certificate of the Director
and every such certificate shall be deemed a sufficient, —,
voucher for the amount therein certified. Sec, 8(b),

- CIA Act of 1949, as amended; 50.U. Ss. C.A.. (4033 {0)~

The CIA Act of 1949 (63 Stat. 208, &- Le 81- 110) became cttective June 20,
19495 the Act (63 Stat. 378, P. ome 81- 152), Suty 2° 1949. . - ae
whe question of law thus presented ist in selling anda dis spOs sing

ations, must the Ag ency adhere! to the Act and

submit to the jurisdiction of the Administrator, General Services

“Administra! ion? oy re

ol £90 18 oe 4 7 :

50855 Docld:32423532 Page. 185 /\ | f\ . oO eroney

it. ARGUMENT —

“(he braad authority afforded the Agency by Section 8(b), supra)

-is conclusive—'(iyhe sums made available to the Agency may be expended
- without. regard to the provisions of law and regulations relating to the ©

expenditure of Government funds; ...." . That authority is enhanced, not.
fe limited, by the Act—"{N)ot shall impair ox affect the authority of—...

ne Central Intellig gence Agency" and by the Act! ts legislative history. Te

. follaws naturally that the Agency's authority to procure ona confidential,

i basis without recourse to the Act inherently carries with it the authority :
t Loe

—

_to dispose on a confidential basis without recour se.ta ‘the Act. _By way of ©

or

an extreme hypothetical, suppase the Agency had procured a -Saviet
weapons system, without Soviet knowledge. ; Using Section 8(b) authority,

. it had expended funds through a secure facility for the procurement and”

.

brought the system to this country where it was studied andtested. By

virtue of the testing the Government was able to develop electronic counter
. : : “- . . :
measures which would effectively puny t the system. Upona  determinatio:

that the system is of no fart ner use, can it t be seriously argued that its
disposition by the Agency should be anything other than confidential? The
purchase was confidential; possession of it by the United States Government

‘wag confidential; and, the knowledge gained and the countermeasures

developed are confidential, To hold ose siige ¥ would. rendex't the intended

purpose of Section 8(b) a nullity. Re ) FROM
‘ | 7
OG} s!
ecnnep SS
955 Docld:32423532 Page 186 Smee

PLA

_
we

4

ne _ The short expression of Congressional intent found in the Act!:

legislative history suppoxts the view that the Agency's activities in the

confidential funds area are not within the purview of the Act. "As far’as
pr racticable. 3 Procaxements ‘useand disposition should be '...in accord:

“with the provisions of the Act... -parbiculaxly so far as common-use items

‘and administrative supplies are coné vemned.' vt is suggested that. ‘a Gover:

ment-owned, but overtly commercial, ‘Sirline used in support ‘of foreign

Sntelligence activities does not fall within a lgommon-use items and .

1

‘administrative supplies categorization. Similarly, Gf the last paragzeph.
of legislative history (emphasized 1 portion quoted above is xead in the
, nekative, the proposition becomes clear. 7 m oe rye act wi will, _ fnot) . 7

7 govern. - “Gh. . - “compliance with ere “ and msbigaton to the jurtediesto

of the ‘Administrator will...

hampair or affect the authority! of the several

agencies to which the subsection applies : as to interfere with the operat tio

of their programs. weet! Were the Agency required ¢ to  corhply with the .
Act and submit to the jurisdiction ¢ of the Administrator in the exercise —

not only would that author rity be impairxe

of its confidential funds authority,

’

aa _ : _ : a 7 : . Oe ses ae -
ox affected, but many of the Agéncy's most significant statutory authori tie

=e .

ané responsibilities would be frustrated.

LO 7 , .
_ Uh ani — SENDET oo
i , -

Ay)

.
HY sobs5 Docla: 32423542 { Hhge 187


1
i

Lf.

“In looking at CIA's express authority to procure on a confidenti.

basis and examining the nature of its implied authority to dispose, genera
— . . .

statements on the rules of statutory construction are helpful. For’

example: | :

Where a statute confers powers or duties in
general terms, all powers and duties incidental and
necessary to make such legislation effective are
included by implication, Thus it has been Stated, tAn |,

+ express statutory grant of power or the imposition of.)
a definite duty carries with it by implication, inthe ~~
absence of a limitation, authority to employ all the -
means that are usually employed and that are necessary |
to the exercise of the power or the performance of the =, ..« --
duty... . That which is clearly implied is as mucha 9 J
7 paxt of 2 lan 2 as that which is ex pressed. ! ae

The xule x whereby : a stahite is, by necessary a
implication, extended has been most frequently :
_.. .. . applied in the construction of laws delegating powers
‘7 to public officers and administrative agencies....
Thus where the power to create an office is granted,
the power to abolish it will be implied, and where an
administrative body is given power to enact xegula tions
or exercise quasi-judicial power, the power to provide
for internal rules of procedure will be implied. -.. The 7
power of a municipahty to sue and be sued was held to
imply the power to employ special counsel f for those pur
poses. although the city hada regular salaried attorney.
A municipality, empowered by statute to construct sewers
for the preservation of the public health, interest and
convenience, was permitted to construct a a protecting wall
and pumping plant which were unnecessaty for the proper
_ working of the sewer, but were ‘essential to > public health.
Sutherland Statutory Construction § 5402. ;

ah

pp Ry FE ); ee re
d 20M 4 oo -
ULI 80 1975 | Srppry .

HW 54955 DocId: 32423532 Page fiep . — oo .
? at . oe

Similarly,. — : a so oo,
.-. (I)t has been held that an express statutory a 7
‘grant of a right, power or privilege, carvies with it 7
by implication, in the absence of a limitation, alk ee :
‘the means that are usually employed.and that are _
necessary and proper to the exercise or enjoy maent
of the right, power or privilege granted. In such le
case, the power necessarily implied isa par xtof cots
the legislative act. There is even authority in . ot
support of the rule that powér in a statutory g erent
may be implied although it is not indispensible. to : Joe.
the exercise of the powers granted...._ 50 Am. Jur., a : 7

Statutes $428.00 A

: Cases which speek to the subject of implied statutoz xy powers,

‘are abundant. ‘Tn Schmiedigen Vv. Gelebrezze, Judge Holt zoft held that: . .

Mijtis a . well established principle of statutory construction that every

legislative enactment must receive a ‘sensible and reasonable ; constructior

Ifa strict, Literal iitenpeetatioa v woul

that would ef fectuate its purposes.

frustrate the objective of the legislative body and vould lead to an absurd

or futile result, it must “be avoided." 245 Fe Supp-, 825, “827 7 (1965). Th

. U. S. v. Jones, where a statute gave federal officers the power, to enforce

.

compliance with the law but was . silent on the power to arrest the court

stated:

So, though the texra arrest is not ‘used in the’ a
statute, the lenguege employed necess axily impties .
oye that such power was included, o

wa soit Oo 8

oa mo, A:
HY 50955 DoclId:3 thd Page 1869

. Necessary implication refers to a logical Se

necessity; ic means that no other interpretation - 7
is permitted 1 py the words of the Acts construed; -

‘and so has been defined as an implication which

results from so strong a probability of intention.

that an intention contrary to that imputed cannot be
supported. The term is used where the intention

with regard to the subject matter may not be mani- .
fested by explicit and direct words, but is- ‘gathered . —_
by implication or necessary deduction from. the. . Jes
cizcumstences aud the general language. SB tt

. ° . . a
. '

Consequently # that which 4 is implied in a statute is.
as much.a part of it as that which is expres ed,
for a stal utory grant of a power carries with it, :
by itaplication, everything necessary tocarry ==. ce
‘out the power and make it et ffectual and complete. Se
204 F.2d 745, 754 (1953 3); certiorari denied, a
98 L. Ed. 368; rehearing denied, 98 L. Ed. 404,

we CONCLUSION

i ; Adherence to > the Federal Px opexty and Administrative Services

“

Act in disposing of the two airline corporations svould do far more than

impair ox ‘affect Agency programs. it would endanger t the national security

which the statutory uthorities available to the Agency were designed to"

_ protect. The Central Intelligence Agency, ‘pecause of the unique stetutory

ae “UC an Hany ig

GHA | ! : |

HY so! 55 DoclId: 32423532 Page 190

cee ee leer te ne eee EEE ge tg

HG 0943 Bocld:324273532 Page 191

8 sepRer —

jrplied power to o dispose of £ property confidentially without 2 recourse to tr

a

grant provided it in Section 8(b) of the CIA Act, and because of the unique

° oy

mature of its statutory responsibilities, possesses both the express powe:

we, . Loe -

“to! y procure property confidentially without recourse to the Act and the

Gary M. Breneman_
- Assistant General Counsel
 Centrabintelligence Agency

Qeb ae 1935

HR 230-8 and HHB 230-1

- Concerning Regulation and Administration

of
. Agency's Proprietaries
.
|
:
i
i
4

vit s9 1975
; ny 4 mM . .
4 Gah ; .,
HW 509b5 ‘Docld:32423532 Page 192

7


S/o seorer

ee PLANS, PROGRAMS, AND PROJECTS HR 230-8 |
8. ADMINISTRATIVE PLANS, LIQUIDATION PLANS, AND FISCAL
ANNEXES
. GENERAL |

“ay In the ‘furtherance of some Agency objectives it is necessary to establish,

affiliation with the U.S. Government. These ostensibly private organiza-
tions which may be susceptible to scrutiny by a variety of tax and regula-

managed in accordance with normal practices and requirements of the
type of enterprise concerned, and that they are staffed with qualified
personnel whose cover histories are compatible with such employment.
“It is also essential that there are adequate general management, financial
and security controls consistent with both operational effectiveness and
the requirements ot nonattribution, for the protection of the Agency's
interests.
- (2) The controls and procedures which -are applicable to an instrumentality
ie will be specified in a project outline and administrative plan or fiscal
annex. Standards and format for administrative plans and fiscal annexes,
“as well as for liquidation plans to be followed when an instrumentality is
to be discontinued, are prescribed in HEB 230-1, ,

b. “POLICY : : . .

. when it contributes to the accomplishment of the Agency’s mission and
js operationally determined to be the most advantageous means of gaining

‘shall be to conduct secret operations or support such operations under
ce cover of its overt function.
_(2) No binding commitment with respect to the establishment of any in-
’.  strumentality shall be made before the approval required by this regu-
lation has been obtained. - .

¢. DEFINITIONS .,

(1) PROJECT. “A project is a management device through which specific
operational activities are undertaken to meet programmed objectives.
Budgeting and financial accountability are maintained against ‘the project
for funds and resources authorized for it.

(2) INSTRUMENTALITY. An instrumentality isa corporation, a foundation,
partnership, sole proprietorship, or other legal entity (within the private

have been authorized under a formally approved. Project. Within a Project

there may be one or more instrumentalities.

e= (3) Proprietary. A proprietary is an instrumentality In which ‘the Agency
-acquirés ownership of a controlling Interest, through appropriate
nominee or legal entity arrangements. The Agency exercises, through
stockholder or other equity arrangements, control of the instru-
‘mentality in terms of the policy, administration, formulation of
budgets, and the application of funds. -

(b) Operational Investment. An aperational investment Is the acquisition
by the Agency of an equity in an instrumentality, through appropriate

ment. Any influence the Agency may exert over budget formulation and

ae

“Revised: 1 August 1969 (464)

i GiOUP 3
: Eadluded from automatic
downgeading ond

SECRET declauiScation
UUI-g0 1875 Se ; Sg

,

4
HW “sobs poor sdapiass2 Page 193° : - oo

opetate and support overt Instrumentalities which do not have ostensible -

tory authorities, the press, hostile elements and others, require operational
security of a high order. It is essential that they are established end

(1) The establishment or “continuance of an instrumentality is justified only _

a particular and necessary objective. The purpose of an instrumentality -. .

sector, domestic or forcign) for which specific; funds or other assets _

nominee or Jegal entity arrangements, of less than a controlling
interest, with.the expectation of recovering some or all of its invest-.

errr an er eee .
+ rater -


ws SECRET | ot

the application of funds ls a matter of negotiation. (NOTE: Operational

and chapter IX of HHB 30-1.)

in the asscts nor right of participation in either the income or

_ excluded from this definition.) There are two types of subsidy:
(2) Controlled. A controlled subsidy involyes suppart of an instru-

and which fs therefore largely dependent upon such support. To
through the formulation of budgets, the requirement for financial
talities, proprietary regulations will be applied to the proprietary
instrumentality. . :

i

instrumentality. to which negotiated fixed-sum incentive. pay-

the exercise of discretion over expenditures are at a point es-
sentially beyond Agency control Evaluation of performance is

i

amount of the fixed-sum payments. :

instrumentality is used to fund or payroll Agency activities when, for
: “through an overt mechanism. The Agency has legal or beneficial owner-

’ nominee or Jegal entity arrangements. Although these instrumentalities
are proprietaries, they operate under special authorizations that may

" HEHB 230-1.

programmed operational objectives, Upon approval by appropriate au-
thority it becomes the framework within which the project is implemented
” - and its effectiveness initially evaluated. 7 . To, .
' (4) PROJECT RENEWAL. A project renewal is the approval after evaluation

" by appropriate authority for continuation of a project beyond the period

aes update or supersede certain provisions of the project outlines ~ .
-(5) ADMINISTRATIVE PLAN. An administrative plan is a supplement to
- .the project outline which upon approval by aporopriate authority consti-

_ tutes the administrative framework within which the instrumentality is

-- yegulation and HR 230-9,.in the management of project instrumentalities,

controlled subsidies. ~ ; . ;

TERMINATION. Termination is the discontinuance of a project or an

- §nstrumentality, upon written approval of the Deputy Director or Head

- - of Independent Office concerned. a .

' (7) LIQUIDATION. Liquidation is the settlement of accounts of an instru-
_ rnentality, the final disposition of its remaining assets, and dissolution of

the instrumentality.

“Revised: 1 August 1959 (454)

WW “secret

wi $09$5 Doctaiszazsss2; Phdd ist ©

pe HR’ 230-8c(3) a "PLANS, PROCRAMS, ANL_2ROJECTS.

loans shall be handi!ed in accordance with provisions of HR 30-9 .

(c) Subsidy. A subsidy is the contribution of funds or materiel to -an-
instrumentality by the Agency, with the Agency acquiring no equity

the profits of the entity. (Payments to foreign Halson services are _

mentality whose income is primarily derived -from Agency funds .
the extent that the Agency is able to exercise control it does so.
accountings, and the application of funds. Where a project consists _
of a combination of separate subsidy and proprietary instrumen- ¢
(2) Noncontrolled. A noncontrolled subsidy involves Support of an.

ments of Agency funds are made, but budget formulation and -

a matter of operational judgment, not-necessarily related to the
= (a) Funding and Payrolling Instrumentalities. A funding or payrolling —
". yeasons of security or cover, funding or payrolling must, be accornpushed

ship of a funding or payrolling instrumentality through appropriate ©

, 7 a vary substantially from the requirements of this regulation and .

. - (3) PROJECT OUTLINE. A project outline is a written plan for accomplishing -_

- = ="covered by its initial approval or previous renewal, -The renewal may ane

- to operate. To that extent it replaces all Agency regulations, except this -
a. their internal activities and non-Agency employees..An administrative | ~

<< plan is required for all projects establishing and utilizing proprietaries, —
- operational investments, funding and payrolling instrumentalities, and

chem WI


7 prans, PROGRAMS, AND PROJECTS “AR 230-8d_

“@) DEACTIVATION: Deactivation Js the ‘discontinuance of. the. functioning

. Of an instrumentality, with the charter or franchise retained bub in an

-" inactive status, pertding determination as to Mauida von or reactivation of
the instrumentality,

e”. (9) LIQUIDATION PLAN. A liquidation plan prescribes the: procedures for

: implementing ‘a properly authorized operational decision to terminate

_the Agency's active use of a specific instrumentality and to dispose. of
the. Agency's portion of the assets. An approved, plan is required for
liquidation of all proprietaries, operational investments, and’ controlled
subsidies with proprietary aspects. No liquidating action will begin until
the liquidation plan has been approved.

(10) FISCAL ANNEX, A fiscal annex is a supplement to the project outline |
that sets forth funding arrangements, specific accounting control, ‘tle:
nancial reporting requirements, and writeoff provisions. A fiscal annex -
‘is required for all noncontrolled subsidies. ; -

‘ad. AUTHORITIES: AND RESPONSIBILITIES

a ‘Q) AUTHENTICATION OP ADMINISTRATIVE PLANS, LIQUIDATION PLANS, -
mo, » AND FISCAL ANNEXES, (HEREAFTER CALLED SUPPORT SUPPLE--

MENTS) .
7 fe (a) The joint approval ‘of the Deputy Director having 2 jurisdiction over
. . the project and the- ‘Deputy Director for Administration is required for
(2) establishment, deactivation, or reactivation of an instrumentality;

(2) all support supplements and amendments thereto, including spe-
4 cific deviations because of unforeseen or emergency conditions;

oe (3) transfer between projects of any instrumentality and remaining

8 om assets.
, r , €») Advances of funds to an n instrumentelity before approval of the related :
. --administrative plan or fiscal annex require the approval of the

“Deputy Director concerned, the Deputy Director for Administration,
“and the Comptroller. .

_(c) All Liquidation plans require the approval of the Deputy Director con-
Lu . " gerned and the Deputy Director for Administration.

(2) ‘PREPARATION :

_ (a) The Cperating Official having jurisdiction over the ‘project is re=
sponsible for the preparation and coordination of the administrative
plan or fiscal annex, and, when required in connection with termina-
tion of the instrumentality, the liquidation plan.

r- (b) Administrative plans require the concurrences of designated repre-
-" sentatives of the General Counsel; ‘the Director of Finance; the
Comptroller; the Director of Security; and the Chief, Cover 2 and
Commercial Staff. Liquidation plans require the concurrences of the
designated representatives of the General Counsel, the Director of

Finance; the Chief, Cover and Commercial Staff; and in addition,

the Comptroller for those liquidation plans involving the disposition

of assets with an estimated market value in excess of $50,600. The
assistance and counsel of other offices will be obtained when their
‘functional responsibility is involved. _

a (c) Fiscal annexes require concurrence of the Director of Finance and the
Le _ . Chicsf, Cover and Commercia 1 Statf. .

- “Revisen: 29 ‘October 1974. (820) ‘- - fe go aupper - 16.1
ce pe Lo. + ' SECRET Cl By: 059537 .
REC FROM ae

ne ae

HW 50955 Docld:32423532, \Page 195


HR 230-8d(3). PLANS, PROGRAMS, ‘AND PROJECTS

_ @) PERIODIC REVIEW AND “'REAFFIRMATION. The Operating Oftictal -
_responsible for the project will review each approved administrative.
plan or fiscal annex at least once each year, coincident with considera-
tion of renewal of the project and will either
(a) affirm in writing to the responsible Deputy Director that the previously
. approved provisions remain adequate and valid; or.
- (b) Initiate appropriate revision when changing circumstances aletate the
need. .

—— ro re Revised: 29 October 1974 (340) le
ak aM SECRET a oo -

| ©. UU 2” 1975 7 - ; - -

ea $0955 DocId: 32423532 . Page 196 I oe

Fa lad wed Ws

fe, . | PLANS) “PROGRAMS, AND PROJECTS . 250-1
nae | ed a a od _ - FOREWORD

. FOREWORD |

‘Rescission: HHB 230-1 dated 1 August 1969, 10 January 1973, and
-16 March 1973. ;

This handbook incorporates the Agency procedures pertai

to the administration of project instrumentalities that will be
followed in carrying out policies prescribed in HR 230-8. en
- FOR THE? DIRECTOR OF CENTRAL INTELLIGENCE:
_ JOHN F. BLAKE
‘Deputy Director
for
' Administration
DISTRIBUTION: SPECIAL .
Ai DVN
ki ao ROM
ui on STS
a
i. \ A
Revised: 29 October 1974 a , - i
_ -_ E2 IMPDET
i . : S-E-C-R-E-T CL BY: 059687

HW 50955 Docld:324293532 Page 197

3. . ADMINISTRATIVE PLAN * PRESENTATION. cet ee ee

- 4. STANDARD PROVISIONS AND REQUIREMENTS OF .

vo ADMINISTRATIVE PLANS . 6 202 s 8 es eee eee .
a. BUDGETING. .....-- aan ce ee ee oe

ob. FINDING. see tees ee
c. REFUNDS. .. . ee ye ew ew ee we

dad. AGENCY CERTIFICATION AND APPROVAL. we
“e. ACCOUNTING. IN AGENCY RECORDS .. 2. + «© »
.. £, PROTECTION OF U.S. GOVERNMENT INTEREST .
_. ges PERSONNEL POLICY... = - we ee

- hh. INSURANCE COVERAGE . 2. 2 2 ee = cee
i. CASUALTY PROVISION wee eee se ee
j- LEGAL SERVICES . 6 ee eee eee .
kK, SECURITY POLICY. rs ee ee ee
1.” Not used ce oot
‘m. AUDIT. 2 222 es 2 ee wee ee
mn. FINANCIAL ACCOUNTING AND REPORTING Le ee
Oe: BORROWING, LENDING, AND -PLEDGING OF ASSETS . » -L0
- p. INVESTMENT POLICY. . . - + + + re a
-q. REAL PROPERTY AND OFFICE FURNISHINGS . ....-. 11
x. LIMITATION ON INDIVIDUAL DISBURSEMENTS AND
CONTRACTUAL ARRANGEMENTS . 6. 0 ee eee ee edd
s. SPECIAL ADMINISTRATIVE EXPENSE POLICY... .. - ~~ 612
_ t. TERMINATION AND LIQUIDATION. - - 2 + es + e+ = 2/2
5. . CONTINGENCY CASUALTY.PLAN. «06.20 esse cece wee ee 1S
6. LIQUIDATION PLAN «2. 6 ee we ee ee es wee ol
7. | FISCAL ANNEXES . 22 6 2 Se ee es rs Co
a. GENERAL. . . - 5 2:2 2 2 = iiiitpiiii cag.
-b. ACCOUNTING PRINCIPLES re rrr o)
c. FINANCIAL STATEMENTS . - ee ee 8 2 8 eee 8 eee 15
d. USE OF CERTIFICATION AS EVIDENCE OF FULFILLMENT
OF THE PURPOSES FOR WHICH FUNDS WERE ADVANCED ..
-e@. USE OF CERTIFICATION FOR OPERATIONAL REVIEW. . . .16
+ €. FINANCIAL DATA FOR OPERATIONAL PURPOSES. . .. . -16
° ROM 'g. REIMBURSEMENT FOR OPERATIONAL DEFICITS tee eee 16
a h. FORMAT OF FISCAL ANNEXES... - 2 - ee ole
- uli 26 1875. ,
| | F IA
| . ( a Revised: 29 October 1974 iii
HW 50955 Docld:32423432 Page 198 oe £2: IMPDET

mee oe WN arara=~

PLANS PROGRAMS, AND PROJECTS - HAB 230-1
‘ Ce CONTENTS
re CONTENTS
Paragraph Page ,
Le. PURPOSE. 2. eb ee ee ee a
2. GENERAL. 2. 2s eee ee ee eee ee ee ew ee el dl
.1

ra

Cor aq 1975

~ Cha

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porn cnn aracfliee aid mugs beet eee tg: tine ea rate ee anentntsaenne mgt ance balk tere ae em hee ee ge ne ee

(

:

HW sole Docld: 32423539 Page

FROM.

( 'S-E-C-R-E-T
PLANS, PROGRAMS, AND PROJECTS i HE 230-1
; _ ; : -1

- SUPPORT SUPPLEMENTS FOR AGENCY INSTRUMENTALITIES

1. PURPOSE

_This handbook sets forth guidance for developing support supplements -

(administrative plans, fiscal annexes, and liquidation plans) governing
Agency instrumentalities, as required by, HR 230-8. Sey 7

2. GENERAL: ee

Properly approved support supplements modify or waive specific provisions
of Agency regulations except HR 230-9 and, in lieu thereof, set forth
the provisions for special authorizations and management control of -
instrumentalities in the conduct of their affairs. They are designed’ to

promote oo . Cote mn, apo.

a, the most éffective management, to include staffing of eachfi :
mentality with personnel qualified to manage it in accordagce with:
Agency objectives, under sound personnel policies and practices; ' °

b.- ‘the estabhLishment of an effective budgeting, accounting, and re-

, porting system that will produce accurate, timely, and useful re-
ports of financial status and financial results of the operations |
of each instrumentality; Peto

-¢.. the establishment of an accounting system for the instrumentalities

_ that is compatible and reconcilable with Agency financial records;

d.: the highest degree of cover and security compatible with the overt .
. character of each instrumentality and its operation or support
_ objectives; ~ , ot

the effective Agency control of funding to, and assets held by, the.
instrumentalities; : oo ee

the orderly deactivation or jiquidation of any instrumentality that
has ceased to be of operational value to the Agency.

3. ° ADMINISTRATIVE PLAN PRESENTATION

The administrative plan presentation should consist of (a) a memorandum
requesting approval of the administrative plan by the Deputy Director
having jurisdiction over the project and the Deputy Director for Admini-
stration; (b) the administrative plan (usually drafted by the support. |
element in the operating component concerned); and (c) a concurrence
sheet evidencing concurrence in applicable. provisions of the administra-
tive plan by the designated representatives of the General Counsel; the

“Comptroller; the Director of Finance; the Director of Security; the .

of

gviged: ,29 October 1974 | | a” | , _ |

no? TAA?

HHB 230-2 ' :
ae i.

S-E-C-R-E-T a
oo fo i? oy
PLANS PRLLRAMS, AND PROJECTS"

Chief, Cover and Commercial Staff; and such other Agency components

whose functional responsibilities are involved. The memorandum should
state the project's operational objectives, the reason why it is believed
that an instrumentality is the most advantageous means for attaining the
objective, the type of instrumentality to be used, funds approved for

the current year, funds programmed for the ensuing fiscal year, and, in
the case of a revised plan, a statement as, to the need for the revision
and funds expended for the past two years. ce Lo

4. STANDARD PROVISIONS AND REQUIREMENTS OF ADMINISTRATIVE PLANS *

«Standard provisions and requirements of administrative plans are listed ~~
below. A single reference may be made in each administrative plan that

the provisions of HHB 230-

1 are applicable. Substitute or additional

provisions may be included in each plan to the extent necessary wherever

| ‘the standard provisions and requirements are not applicable.

ay BUDGETING [00 208 be

“Ss @). Purpose 6) 0
wy - ‘The approved annual operating budget’ for a project provides |”

‘the means to integrate it into the planning and budgeting

-. system of the Agency. .The process for the annual renewal of a
project permits the appropriate Deputy Director, through his

we

review, evaluation,. and formal approval of the project and its

.. operating budget

accounted for, w

, to authorize the continuation of the activity,

under which funds may be advanced, controlled, expended, and

ithin the terms of the approved operating

budget of the project. The approved operating budget of the

- project provides

real (total) cost of the activity, to. include: -

cep 4 (a) “‘Yunds Available 7 as

a basis for an objective evaluation of the

, Clear identification of funds either available or presumed
--to be available to the project (or instrumentality) from

all sources

- ".. budget, which will include =

during the period of the proposed operating

)- any prior-year funds (beginning cash balance, in-

- cluding

g liquid assets); -

(2) other U.S. Government (non-CIA) funds;

Ae,

Qed 2n WS

HF F0985 Bocld: 32423532 Page 200

other CIA funds;
(4) all, other income;

; me 5). the new funds re uirement of the projes* (from
ce quit p
G Via . curren

t appropriation). a
“Revised: 29. .cobe 1974

+ PLANS, Pras, AND PROJECTS ow | 7 HEB 2500

\ (b) _Proposed Expenditures

. Clear identification of all proposed expenditures. re-
quiring cash, broken down in sufficient detail to separate

med) fixed expenses (overhead) ; and
“@ “opexating expense. .

“() Estimated cash Balance at the End of the Fiscal Year

2) _ Preparation

pee (a) Operating budgets are : to be prepared antwally for. each
“i... approved project; with a detailed breakdown for each

"< Gnstrumentality. The budget will cover the past year
‘(estimated obligations), the current year (propos

, a forecast for at least the next year's operations fin’: -°

“(4% UL" agreement with the limitations contained in the re@evant,.

Z operational program. The categories of expense widl be

consistent forall years and;will follow. the general .° =

svélassification of accomts in.its prescribed accounting

reports, to facilitate ‘comparison. and justify increases’ —

or decreases (overhead vs, operational; stateside vs.

tan overseas; salaries, travel, ete. + as pplicable).

a ee SE Ob): Scheduling of approvals of operating budgets will conform
7 corn. ty with the schedules established by the appropriate Deputy
‘Director for annual project renewals. ;

.(c) ‘The Office of. the Comptroller is to be provided a copy Of
the approved operating budget for the project immediately
- following formal approval by the appropriate Deputy |
vos : Director. .. This requirement also ‘pertains to any subse-
an . quently approved revision of the project operating budget.

ob. FUNDING ; . cp a . . os ee dass eres

a Instrumentalities generally should be provided with cash not
in excess of three months' normal operating cash requirements.
ah Further funding of any instrumentality should be deferred 7
OR ul whenever available funds exceed this limitation... If substan- -
- tial amounts above this limitation are on hand, the instrmen-
al a8 1975 _ tality should be @ required to return the excess to the Agency.

GiA

| ( Revised: 29 October 1974 Due | 3
. ~ E2 IMPDET -
oe | -S-E-G-R-E-T. CL BY: 059687

Hy y 955 Docld:32423532 Page 201. . : .

“¥ FO Pag 2

7 re "  §-B-C-R-E-T

HB 230-2. (( | PLAN. PROGRAMS, AND. PROJECTS = -
b(2) | —

(2) Funds in any instrumentality that are in excess of normal
operating requirements may be held for operational purposes 7
when justified by the appropriate Operating Official and when’
approved by the Deputy Director concerned and the Deputy ,
Director for Administration in the following circumstances:
(a) In order that the instrumentality may present periodic
; financial statements reflecting substantial cash balances
and: investments for the purpose of ‘strengthening cover
.. and providing the appropriate stature in the commmity of
its operations © SO , ce

or reste

ete oe

yt ou #1: purpose of providing income in such amounts that will
or _s.lend the appearance for cover purposes of not having to
- rely solely on periodic contributions throughout’ the year
(Agency funding) © -- 0). ou. untae as

(b) -To permit the instrmentality to make inves ents for the

-(€) To provide the instrumentality with funds for any ad
wewryrusually large.anticipated disbursement(s) in order to 7
“preclude undue attention which might be created by in-
jectioh of a large amount of: funds and their immediate
withdrawal Joss. fan. feces oo Foo cyet

oye Aa tte

Funds, as needed, will be made available to an instrumentality | -”
. through various appropriate funding mechanisms in coordination .—
_° awith the Cover. and Commercial Staff and the Office of Finance. — ...
- All funds received by the instrumentality will be deposited in :
- Sts bank account(s) whose use and authorized signatories have
_ been approved by the Operating Official responsible for the .
project. Dual Signatories are preferred on all bank accounts.

(4) “All bank accounts established by instrumentalities will be.
-..” . reported to the Office of Finance when opened, or notice”

-’ thereof will be included as a part of the first financial .
report submitted by the instrumentality covering the period in
which the bank account is established. Data reported will
include the name and address of the bank: names’ and titles of ©
signatory authorities; the reason why an account is operable

.only by a single signatory, i£ such is the case; and whether
the signatories will be covered by a fidelity bond. Bank
accounts normally will be in the name of the instrumentality
aumless deemed operationally inadvisable by the responsible —
Operating Official, reported and explained concurrently to the

’ ; Director of Finance for review. Lf the bank account is to be

mo + "**4n some other nane, appropriate protective control documents

“'swill be executed. oo. os

UGE on 175
4

of
‘.

“Revised: 29 October 1974

oe

HW 50p55 Docla: L Beso Page 202 | Fee
i . 4a : a , a { R - ,
S -E- yo bak I

i ee  f SB AC-R-E-T a

PLANS, PROGRAMS, AND PROJECTS = Ss, HB 230-1,

(5) Requests for advances of funds to instrumentalities must -indi-
cate (a) the specific purpose of the advance; (b) the identity
. 1. Of any intermediate instrumentalities used to introduce the
' +. funds; and (c) the accounting treatment to be given the funds
in each receiving instrumentality,. as well as any other infor-
mation that will assist in the clear identification of Agency
funding on overt Tecords and statements. ee Ty

“1(6) The concurrence of the Director of Finance and the Comptroller
.: ‘and the approval of the Deputy Director concerned are required
veo: for a transfer of funds to be made between instrumentalities
2 0 wo “ref different projects. Excepted from this requirement are
. ws) .-transfers involving payment for actual services rendered,
woita’ < reimbursement of expenditures made in behalf of the trans-.
_mitting instrumentality, | or accomodation funding. |

“Qe AlL, ‘refunds ‘from ‘instrumentalities: to “the ‘Agency’; het ro
va permanent or temporary, must be explained by a memorandum
vy golristating ‘the purpose of the refund.and the effect of the refund
on the overt records and statements of the instrumentality.

Jette *

-,:(2)- In the event funds are to be returned to the Agency under |
Le woos paragraph 4b(I) above, the Operating Official having juris-
>. diction over the project will.devise the methed of repayment
:i in coordination with the Director of Finance and the Cover and
at Commercial Staff. Co ne ets

d. AGENCY CERTIFICATION AND APPROVAL

as .- The project: case . officer will review financial statements Submitted
- by the instrumentality (see paragraph 4n(3) below) and attach his’
_. <.eertification that "to the best of my knowledge and belief the —
«statements are true and correct and the reported expenditures are
_ within’ the scope of the project authorization."':.In addition, the
financial statements will be approved by an appropriate Agency
approving officer and forwarded to the Proprietary Systems Branch, .
Office of Finance, at the earliest possible date and not later than ~-
sixty days after the close of the accounting period; extensions of
time will be granted by the Director of Finance upon appropriate
‘and reasonable request. Approval procedures for the writeoff of .
. assets are outlined in HHB 30-1 chapter VIII for casn and receivables
PCD arid HR 45-6 for inventory or property items.: A copy of the financial
raMS statements will. be forwarded to the Office of the Comptroller.

eC Qn 1975 - When the instrumentality is funded by more than one Agency component ,
‘the case officer certification and approving officer approval of
co such components also will be obtained. ; ;
( UG Gin - Bs

Ww 50955 pocta:sea2Peatis@dye ayLctober 1974 - “2 JMPDET —_ 7

“S-E-C-R-E-T -_
HHB 230-1

4e
ec. ACCOUNTING IN “AGENCY RECORDS

The Office of Finance is authorized to accept the. financial state-
“ments referred to in paragraph d above, for appropriate recording
in the Agency's system of accounts. co,

£.  PROVECTION OF U.S. GOVERNMENT INTEREST

'.'I“(1). In the case of a stock-issuing instrumentality, all purely
yet’ ess «nominal stockholders (as specifically differentiated from
sii. Agency-controlled holding companies or non-Agency connected ..
ae -« beneficial shareholders) either will endorse in.blank at time —
 .,*¥o£ issue the stock certificates.issued in their names or
© execute an-irrevocable stock power covering the stock issued. .

documents protecting the equity or other interests of the
>.) Agency will be executed. Those documents may be overt or
-r: classified,.and will be-prepared by the Office of the Genet

~ Counsel. . The classified documents will be executed on behdlf.

of the Agency by.the Special Contr.

$ od

-yPersonnel.'! i¥ PRUa la hav ata Jaa ee ee Be

(3) | The, executed stock certificates, irrevocable stock powers,
-.!? ° ‘declarations of trust, memoranda of understanding or other .
--.' control documents evidencing Agency equity or interest in
nstrumentalities will be forwarded promptly to the Propri-.
etary Systems Branch, Office of Finance’, for recording and
custody. . When such documents need to be retained by an in-
strumentality, the reasons that necessitate such retention
will be reported to the Proprietary Systems Branch, Office of
Finance, by the Operating Official responsible for the project.
_ This report will detail the documentation retained and the lo-
; coe cation and type of safekeeping facility in which it is held,
~ -e0.. + and- include a signed statement of the custodian acknowledging
' - +: yesponsibility. for the documents. When possible, copies of
1 the documents will accompany. this report. 925 0. F

eo ee om ee wee

g. PERSONNEL POLICY
. a Co fey) Unless covered in the project outline, certain personnel data —
. must be included in the Administrative Plan. This should set
| ree forth a-table of organization, salary scales, benefits and
| ..+ ." allowances to be provided, and a statement of key personnel
i : a selection procedures. Such data will be reviewed and approved
oo F TES o£ byythe Director of Personnel.
ot ULL 94 1975
Sib 64+ ;
: { .
HY 50955 pocra:adushdto Page 204

Revised: 29 October 1974

PLR -B-TE

PLANS; PROGRAMS, AND PROJECTS

(2). In the case of a nonstock-issuing ‘instrumentality, control Lo

acting Officer, Office of |.


rs ( 0. S-E-C-R-E-T
PLANS, PROGRAMS, AND PROJECTS |. —

- cerned and the Director of Personnel.

: . Staff on an individual basis.

4g
Wong

below.

HR 20-49.

(b) Retirement pension and annuity be
the Director of Personnel.

HHB 230-1

(2)' Neither salaried employees of instrumentalities nor persons
"engaged by instrumentalities in other than an employee status
will receive pay in excéss of the maximm rate of a GS-15
unless approved by the Director of Central Intelligence. ©

(3) No commitment regarding benefits or insurance coverages will .
" ‘be made to personnel of an instrumentality’ until such proposals -
have been reviewed and approved by the Deputy Director con-

(4) If cover employment is to be provided Agency personnel, such

- action requires prior coordination with the Cover and Commercial

(5). The employment of an individual who will be responsible for
. the maintenance of the instrumentality, accounting records will
"+. be subject ‘to approval by the Director of Finance, .— me

; "~ (1). The insurance program required by ‘proprietary instrumentalities
“Woe will be coordinated with the Cover and Comaercial Staff for
..°" Gmplementation through MIMUTUAL facilities or through an -

‘alternate method agreed upon by the respons
and the Cover and Commercial Staff, Insurance coverages
_ provided through NHMUTUAL include, but are not limited to,

° workmen's compensation, aviation, marine and other equipment -.
‘coverages, property damage, liability, fire and extended :
coverages aS well as those personnel coverages referred to |

ible directorate

(2) All staff and contract, employees as well as detailed civilian =
and military personnel assigned to a proprietary instrumentality.
are entitled to the statutory or contractual insurance bene- -
_ fits applicable to them by reason of their Government employ-
ment status. All personel directly hired by a proprietary . -
instrumentality are entitled to the following: , oe

(a) Life insurance and commitments for death and disability —-
- benefits in the performance of duty in accordance with

nefits if approved by

(c) ° Medical end hospital insurance benefits if approved by 7

"the Director of Personnel... MHMUTUAL does not normally
got 20 1S either directly uiderwrite or reinsure these coverages,
But the Cover and Commercial Staff will provide advice’

a aa :
( oe Gi iN : and assistance upon. request.

HW 50955 Pocvld:32423532 Page 205

. S'S .
5 . : _ : ‘ °
HY 50955 Docld: 32423532 daak /A06

k SEOURITY POLICY , |, oe ES nS oe

-]. Not used

| §-E-C-R-E-T

PLANS PROGRAMS, AND PROJECTS

i. . CASUALTY PROVISION
See paragraph 5 below. . - a _
js. LEGAL SERVICES ee
“The Office of General Counsel at all times will: be kept advised of
‘the current status of the legal requirements of the instrumentality |
and will be responsible for accommodating its legal problems and .
., for approving the use and the fee of. outside counsel. Any attorney
“used by an. instrumentality will be selected or approved hy the _
"*“ Office of General Counsel. | ee ee ae

re ant ae

“(1) Unless covered in the project outline, there should be a

7 statement in the Administrative Plan outlining the security? |.
requirements. This should include the types of operationaljgse-
curity approvals; physical and document security controls; :
‘contact and commmications procedures between the instrumentality.

and ‘the Agency; security indoctrination of personnel; procedures -

"for periodic review of operational ‘security and related matters

* by CI Operations; emergency procedures, if applicable; and

requirements for storage of classified or sensitive material.

~. (2) An instrumentality will be managed in a manner consistent with
‘" = -dts overt purpose to avoid disclosure of its true nature and
~~ the Agency's connection with it. No non-Agency person will be
made witting of the true nature of an instrumentality without
prior approval by both. the Operating Official concerned and ~
the Director of Security. All persons considered for em-
. approval, with appropriate biographic: information. The respon-
“sible directorate may ‘establish additional requirements and :
‘procedures ‘as required. oo sr

_..* "+ ployment, in an unwitting capacity also will be reported for

m. AUDIT >

. An audit program will be developed and implemented in accordance » -

_. with the requirements of HR 31-1. The prior approval of the Chief,

-" Audit Staff is required for the employment of either witting or un-
‘witting public accountants for audit: pu vposes.

rai ty ; Lo oe ; Lt : a . . .
bl aaa 95 _ oe Revised: 29 October 1974

st


@)

0)
(a)

©)

Gel a0 1815. .

C CIA

© s

be PLANS, PROC) AS, Aw PROJECTS . a HHB 230-1.

New . a 4n

n. " BINANCTAL ACCOUNTING AND REPORTING
me)) The instrumentality will maintain an accounting ‘and a financial
"reporting system consistent with the dictates of cover and
security and approved. by the Director of Finance. —

@ The accounting system will provide

full. recording of the financial. ‘operation of each instrumen-

. tality; _

Zou

‘control over and accountability for all funds, “property,
. and other assets for which each, instrumentality is re-

sponsible;. . os ie senen:

information required for integration “of instumentality

accountings into the accounting records of the Agency}

any other. financial or cost information required Sr wate
effective management of the instrumentality by. the re ao

sponsible Operating Official.

May

©), The instrumentality will submit ‘the following financial “State
“ments. and related cata on. at least a quarterly basis:

©

Balance Sheet.

fet:

Statement of Income and Expense. -

‘Summary Statement of Cash Receipts.

Summary statements of each transaction in 1 Certificates
of Deposit and interest- bearing accounts.

‘Schedule of salaries paid to Agency staff and contract
personnel. . ; hoes toe

“6.

Schedule of salaries ‘and expenses, classified by general
categories, paid to directors and principal executives of

- the instrumentality.

Schedule of cash in bank. accounts with certification that
reconciliation with instrumentality accounts has bes
made and reviewe ed.

“LE an asset has been written: off during the reporting
period, a schedule also will be included with the fi-

nancial report describing the item(s) written off and the.
circumstances that support the writeof£ action. Write-
off action is subject to the approval procedures in

HHB 30-1 chapter VITI and HR 45-6.

MW 50955 _Docla:3242Revd Sacdye 29, Pctober L974 : _ 9.

B2 IMPORT

ate Me

PLANS PROGRAMS, AND PROJECTS

(i) Any other financial reports required by the Office of
’ Finance and concurred in by the Agency component re- » .
sponsible for the project. en ee

(4) The statements will be certified as true and correct by the -
principal agent of the instrumentality. The statements will
clearly reflect Agency funding for the period covered, or such
funds will be identified in a covering memorandum signed by -

the appropriate Agency approving officer transmitting the
statements to the Office of Finance, including specific identi-
fication of the manner in which the fimding. is recorded on the
:. books of the instrumentality. In addition, the covering memo-
—yandum will identify all fictitious accounts and-amounts in--
an ‘ cluded in asset, liability, capital, income, or expense accounts,
(fs: the balances of which are distorted to cover present or antici-
e+) pated Agency funding or interproject transfers of funds or ..
. equipment. If overt records must be deceptive for cover 3
wey purposes, supplemental reporting should give complete and 9.
Sora? is accurate information for internal. Agency records. }-

oo e. PASSETS 1

coeds

Pa

ee

BORROWING, LENDING, AND. PLEDGING 0

TEATS le teats beatae Cag pl.dricn 2)

yt. The prior: concurrence of the Director o Finance: and approval of
_ the Deputy Director having jurisdiction over the instrumentality |
"= are required for borrowing or lending funds or pledging any asset
by an instrumentality, “Bank overdraft: privileges will be con-

’ sidered as borrowings and require the same concurrence and ap-
proval as stated above. Notional borrowing or lending in order to
pass Agency funds between instrumentalities for approved funding

"purposes does not require the above concurrence and approval.

op. INVESIMENT POLICY

- (1) When an Operating Official wishes to invest funds that, have
been approved for retention in accordance with paragraph 4b(?)
above or funds that are a portion of the three months normal

“operating cash requirements, he will forward to the Director

~.\..9f€ Finance for-his approval a memorandum recommending the
investment of funds. -The memorandum recommending the in-
vestment of funds will provide the following data:

(a) Reason for the investment.
tg ® Types of investment recommended, restricted. to the following:
OR ok So .

| , oS 1) U.S. Government securities. —
Fut 20 1975. () | Mes .
re : _ (2) Interest-hearing accounts or Certificates of Neposit
|. U LA '~" in member banks of the Federal Reserve System only.

®

ww 50945 Docld: 32403532 Page..208 Se Revised: 29 October 1974

“HEB 230-1
ad OO — 4q

CO |
’ PLANS, PROM MS, “aND PROJECTS

(3) Non-U.S. Government securities; list specific issues
- recommended for purchase. - oo . .

.

(c) Maximum amount recommended for’ investment, in each ‘type.
_(d) Length of time investment of funds is anticipated.

_{e) “In the event of. investménts in ‘securities, state the name .
_ ain which they will be registered and the type and location
of safekeeping facilities to be used for the securities.

(2) After initial approval of the Director of Finance, the instru-
2 mentality may, at its discretion, make continuing investments .

. . .:.-in U.S. Government securities or ‘in interest- -bearing accounts

we 24 Or Certificates of Deposit of approved bank(s) having maturities

of one year or less. Each purchase of Certificates of Deposit
having maturities of greater than one year and each investment -

a: In non-U.S. Government securities must have prior approyal of

aS the Director of. Finance and the Comptroller. 2 sa.

eet actabtins alba

q- “REAL PROPERTY AND OFFICE: FURNISHINGS

@- ‘The lease of real property requires “approval of the. ‘designated
. Agency approving officer for the project concerned. Purchase,’
- construction, improvements, or alterations of real property
(except improvements or alterations included in approved
. operating budgets) require approval of the designated approving
officer for the project concerned and, in appropriate cases,
the technical authorization of the Director of Logistics. ~
(The component responsible for the project will maintain a
‘record of real property held by the instrumentality, including |
‘the following information as applicable: country or state of
location; type, i.e., purchased or leased; Size, i. e., square
footage of building and acreage of land; purchase price;
_ permanent iunprovements or alterations totaling $1,000 or more;
“+ annual rental and term of lease, unless the property is acquired
_. for less .than 12 months and the rent doés not exceed $250 per.
‘month. This information will be made available to the Director ;
of Logistics upon. request.) . a an

(2) The ‘procurement of office fmnishings not included in approved
‘operating budgets requires the prior written approval of the.
Operating Official responsible for the project.

a

199M aaa ON INDIVIDUAL DISBURSEMENTS AND CONTRACTUAL ARRANGEVEN TS |

og on 185 Except. for funding transactions, any disbursement in excess of |
; ~ . $5,000 or contractual arrangement of more than 12 months’ duration
; ul ah requires the prior approval “of the designated Agency approving
| ( - . officer for the project concerned. : a
1 . . .
Revised: 29 October 1974 : oo 7. ul
-% E2  IMPDET .

HW 50955 DocTd:32423532 Paye 209 - eReeR-ReT Choy: ncagey.-

HB 230-2 - PEAK: AOGRAMS,. AND PROJECTS -
4s oe Se mo

s. SPECIAL ADMINISTRATIVE EXPENSE - POLICY
(1) Travel and.subsistence expenses incurred in behalf of the
po 7 instrumentality by authorized representatives will be paid on
/ the basis of actual and necessary expenses. When actual and
‘necessary expenses excced the maximum allowable rate established -
for reimbursement for actual expenses under HR 22-7, the
claimant will provide detailed justification. Authorized —.
. representatives may include stockholders, officers, directors, ..
employees, any individual retained in a professional or inde-
. .. pendent contractor capacity on a fee basis, and staff agent or
seca > contract personnel wholly integrated into the project. Air
4° transportation less costly than first-class will be used to-
the extent practicable. When first-class fares are paid, such ~
“payment will be justified in writing in the files of the ;
: ’ dnstrumentality. a
|

: cots . Ce a,
Operational ‘entertaimnent expenses incurred by any of the # 2.
_above personnel will be reimbursed on an-actual cost basis} in ©, ./.
accordance with HMB 30-1 chapter IX, to the extent that sudh
expenses are reasonable and necessary to the accomplishment of
“+ operational objectives. — os

cna

pe : Uvpe Croan Upp abd fad pk es 2?

Directors of instrumentalities may be paid up to $50 per day,

poe, 4 .- and travel and subsistence expenses for their attendance at

| J. 9." directors’ meetings, except that the payment of $50 per day
: : .» “will not be allowed to directors having an employment. re-

’" Jationship with the Agency or with the instrumentality..

. (4) Expenditures authorized in paragraphs s(1), (2), and (3) above ©
- - will be reviewed at periodic intervals by the responsible case -
_ officer to evaluate the necessity for such expenditures and -
- their reasonableness..---- - - 7 5 * are

“ t.TERMINATION AND. LIQUIDATION re eee a

- °° -(]) The Administrative Plan will provide that when a proprietary -

vg Wo sist. project or part thereof ceases to have operational value or .
a Se - will cease to have such value in the immediate future, the
responsible Operating Official will prepare and submit to the” -
Deputy Director concerned for his approval a proposal to oS

i
: mo ae “ROW the projector a part thereof.
| Se GaN oe oe Se :
"| (2) >: The proposal will set forth any conditions or considerations
Vo, NEL 2g 1875 that have a bearing on the decision to discontinue the project
BO or a part thereof and jnclude the date that it is recommended
ul ie _ operations cease. | :

(3) The. liquidation plan will be. prepared in accordance with the
' provisions of paragraph 6 below. © gy

1
|
ood.
HW 50955 Docld:32433532 Page 210 a Revised: 29 October 1974

» 2 PLANS, PROC. 1S, AND PROJECTS HEB 230-1
. . . . ae 5

(4) ‘If the proposal includes deactivation of any project instru-
"mentality, together with a disposition of a portion of its
assets, the memorandum will set forth, in an attachment, in-
formation concerning planned disposition, after settlement of -
obligations, of cas h and noncash assets of the instrumentality.
The plan for partial disposition of assets requires the same
approvals as a liquidation plan.

Se CONTINGENCY CASUALTY PLAN

A contingency. casualty plan should be prepared for instrunentalities if.
‘required by HR 20-49. - oo,

6. LIQUIDATION PLAN a Woe ok nor tas

wae Logie fest Elyaty was

“wee

_ When the Deputy Director concemed has approved liquidation ‘and dis-. a
solution of a project instrumentality, a liquidation plan will be developed

’ by the responsible Operating Official to cover liquidation of the assets -
and liabilities of the instrumentality as required by HR 230-8 and in.

_ accordance with the format and substance set forth below. It will be +

_ forwarded for approval. as provided in HR 230-8d. 2 pee hey:
ae?“ Pdentification of instrumentality(s) to be Liquidated

_b. _ Approval for termination (cite approved proposal as required in
; ‘paragraph 4) above) es re

Cc. A concurrence sheet showing concurrences in ‘the applicable pro-

'. visions of the liquidation plan by the designated representatives
of the General Counsel; the Director of Finance; the Chief, Cover
and Commercial Staff; the Director of Logistics, when real ‘and
personal property holdings are involved; other Agency components
when their functional responsibilities are involved; and the _Comp- :
troller when assets of an estimated market value. in excess of ©
$50,000 are involved | . .

_d.- Financial Statements

Furnish a current statement of assets and liabilities, and a pro-
jected statement of assets and liabilities ¢ at date of termination
- to include terminating expenses. -

omer py Method of Liquidation

veil Party responsible for actual liquidation. Explain how liquida-

OCI an 1875 tion of the instrumentality will be handled, such as by princi-
a _ pal agent, cleared and witting attorney, etc.
S iA ,

tts 29 October 1974 ; SO 13 -
. . £2) IMPDET
SB-CCRE-T “cr By: 059687

|
|

HW $0955 DocId: 32423532 “Page 211

ane HEB 230-1 “PLANS, PROGRAMS, ANU PROJECTS .
i a 7 _ a : A a ; ; - . 7 . . .

mtr

(2). How will the instrumentality be disposed of?

‘(a) Will it be disposed of intact? If so, by bid, negotiation,
pift, etc.; or. . Be i

(b) Will the instrumentality shell be transferred to another -
Agency project; or : eg

(c) .Will the charter be terminated; or .

“ (d) Will the instrumentality continue to operate. without
- “Agency participation; or es a
(ec). Will the instrumentality be deactivated but retained ina
dormant state for future possible use? | pt a
fe. Requirement, if any, for additional funds to cover liquidation and | :
“> estimated date of financial liquidation ee nn

2 Disposition of ASsets and Liquidation |.”
(1) If the instrumentality is not to be sold intact, how will 7° |
noncash assets be disposed of? By bid, ‘negotiation, transfer

to another Agency project, gift, etc.?-_ _ Fees ee

(2) Include a positive recommendation to be developed in consulta-
tion with the Director of Finance for the disposition of all
_ cash assets including funds recovered or realized through the
‘Jiquidation process. an Teen eee
hh... Final Audit -
The plan should provide for a final audit before ‘the instrumentality
is liquidated or sold. : oe -
i. Authorization for adjustment of Agency financial records for profit
-or loss . © - oo Coyle Me
j. <A positive statement that the Office of Finance is authorized to
make necessary adjustments to the instrumentality's investment
account based on the final liquidation financial statement "~

7. FISCAL ANNEXES

a. GENERAL

Use of the fiscal annex is based on the principle that accounting
requirements should be detersined by the nature of the relationship |
7 between the instrumentality and the Agency, the degree of control
REGED 2 ROM re
DASA ouaN Jn Revised: 29 October 1974
NW 50955 pooraratthste Be 212 SECRET

naan ied ou
raters £6 aT SON TIEN eae
—— ~

ie

b.

Cee a

de:

ua an 1975

' Revised: 29 Octobe r 197
HW 50955 Docld: 32423532

a ad

12 PLUS, 5 nO 30 PROJECTS : BAB 230-10

Nd | ~ . _ Tbe

, exercised by the Agency and, finally, the availability of meaningful

-accounting data within the instrumentality: In this light, Fixed
pro forma a¢écounting requirements are not sought; rather, each cas

- will be approached. individually through the fiscal annex with, a

‘view to establishing accounting requirements that wil] assure that

‘use of Agency funds is controlled and adequately documented to a

degree consistent with the nature of the instrumentality. and its
relationship with the Agency: “A fiscal annex is required for all
noncontrolled ‘subsidies.. ; oe, bes

ACCOUNTING PRINCIPLES _ .
The purpose of the fiscal annex is to ‘document the particular Fiscal :
. realities of an individual noncontrolled subsidy (HR°230-8c(2)(c)(2))-
' The‘fiscal annex may authorize appropriate deviation from normal

Agency accounting requirements...“ Tt: ‘should establish. funding arrange- _
iments, specific accounting‘controls, financial reporting ‘requirements,

“-and writeof£. provisions. consistent. ‘both with the fiscal realities
“and with the. Agency’s responsibilities for proper use of. funds’.

” ccount ing control should be established through the use of Agency ~
advance accounts, intransit accounts, and inemorandum accounts to
follow the, flow of: funds from the case officer t to » the ultimate
recipient.’ - ' RDS: ple UAE “3

_ FINANCIAL, STATINENTS ae 7 rosy. woes — i

"provision should be made. in the ‘Siscal annex for’ ‘financial state-
‘ments to be‘used as the final element of accounting control through | a
use of Agency memorandum accounts ° Moet . ..

qa) when: financial statements are ‘the normal practice ‘of an instru-
mentality; .

.f

. (2) ‘when they are available “to “the ‘agency within ‘the operational

relationship; and we
oO, when. the Agency contribution | is s identifiable therein. i -
“USE OF CERTIFICATION AS EVIDENCE OF FULFILLMENT OF THE. PURPOSES
FOR WHICH FUNDS WERE ADVANCED - ant
When meaningful financial. statements are not ‘available and ‘the
nature of the operation is such that insistence upon financial

are FROME": js inadvisable, it is considered appropriate and con-
i

stent with Agency practice to provide for documentation of
“services rendered" in the form of a certification signed by an
appropriate case officer and approved by the designated Agency
approving officer for the project concerned. . Such certification.
executed on requests for advance subsequent to the initial advance
should read substantially as follows:

t, ; 1S —

Page 213 - _ EZ ; IMPDE’


HEB 230-10 -PLAtrey PROGRAMS, AND PROJECTS --

J certify that to the best. of my “Knowledge and belic£. funds

advanced to this project have been or are being used for the

purposes for which they were drawn and further advances are
warranted. ;

- In these instances appropriate évidence of receipt of funds by the

.. instrumentality or its representatives normally will constitute

.. full accounting for use of the funds and no memorandum " accounting
procedure need “be used. .

™

ee USE OF CERTIFICATION FOR OPERATIONAL REVIEW

mee,

ot Th addition to the. use of ‘certifications to “support use of funds,

::/ Operating Officials occasionally desire to use. this procedure to
-ensure. that appropriate periodic review of the financial aspects of

‘the instrumentality is accomplished by responsible officers... In

. the basis. for recording and clearing the memorandum account even’
oCl.ce though accounting requirements are. Satisfied prior to such: re-
tee cording and. clearing.: : a eLbO I Gyula!

Sie lag Gris ovr ‘ie cep tig Saat

Bog. BINANCTAL 1 DATA FOR OPERATIONAL PURPOSES.

Occasionally operational interest in projects yequires that certain

financial information be obtained from the instrumentality. This
- .* information ordinarily consists of data regarding the use of funds
“'. that Indicates that such use is, in general, consistent with the
- purpose of the project. Although these data are of accounting
Significance, the format, arrangement, and objective of the reports

may be in a form that is not susceptible to technical treatment and.

recording in the accounts of the Agency. Im such cases the fiscal
“annex should indicate that the financial report is required for
“. operational but not accountability purposes. ° ;

g. _ REIMBURSEMENT FOR OPERATIONAL DEFICITS

. If ‘the amount of : Agency support - is determined by the operating
- deficit of an instrumentality, payments must be supported by finan-
‘clal statements or other satisfactory evidence establishing the

+, amount of the deficit.

, h. FORMAT oF FISCAL ANNEXES

‘Although the format is not rigid, the sections described below are

_ the minimum requirements of a fiscal annex. Other sections may be
added as necessary. a,

ag he “Revised: 29 October 1974
wy 00 5 7 Oo

" pocla: 32423532 Page 2440-0 S-E-C-R-E-T |

‘such cases ‘the fiscal annex may provide that certifications will be, |

wt

HHB 230-1
Se 7h(1)

JS, AND PROJECTS

(1) Purpose and Instrumentality 7 a So

‘Furnish a brief, sterile statement of the nature and purpose
of the project and instrumentality to be used. Include a
’ brief description of the Agency's relationship with the in-
strumentality, showing the degree of control that the Agency
can exercise over the facility: in its use of and accounting
for funds.

(2) Funding

Describe the basis for advances to the instrumentality, and
the mechanisms to be used in introducing funds into the activi-
ty; state whether it will be funded by headquarters or specified
field stations. Any special or unusual requirements should be
_ Set forth in this section. Lhe

(3) Accounting and WriteofE co ee ae

. Define the accounting requirements applicable to the instru-
mentality and prescribe the documentation required to permit |
’ certification and writeoff by the authorized certifying officer.
The use of memorandum accounts should | also be described in

. this section.

DISTRIBUTION: SPECTAL

7 A a Revised: 29 October 1974 _ _ - 17
io . . _ . .  E2 IMPDET .
to So, S-E-C-R-E-T. CL BY: 059687

HY 50955 Docld: 32423532 Page 215 vs : . . .

fh

4

HY - Docld:32423532 Page 216 oa ren Lae

- transactions which would have placed returns from proprietaries in the:

| M66
Orjgji w Wibddressee

Po, | OGC K&)-0331 |

3 February 1975

MEMORANDUM FOR: Director of Central Intelligence

SUBJECT: Proprietary Withdrawals and the Contingency Reserve

‘1, Iam attaching a memorandum of law entitled "Proprietary
Withdrawals and the Contingency Reserve. " This was discussed with you
last week.. oe ,

2. It is obvious that a number of policy decisions and actions will |
flow. from this decision. Our congressional committees need to be appro~
_ priately informed, the Comptroller will need to work out certain adjustments:
with OMB, and I also believe there are certain policy decisions that the
Comptroller will have to work out with Finance with respect to pending

Reserve. I shall send copies of this memorandum of law to all interested
components and will assist them in any way they wish.

JOHN S. AL
f General Counsel

Attachment

ce: DDA a ce SO

DDO .-.—it*” : a So
-OLG

OO Comptroller — i a SO ; Se

Ty EROM _ oe 7 rs

C:ISW:sin

ER via Ex Sacty w/att

a a  E-2 IMPDET _
¢ WN OGG Subj: APPROPRIATIONS wi ati” _ CL BY 000276.
1 - Chrono Oo |

--
cone?
roe Lares

?
lat Bai!

Py iLab shes |

4
1
i.

i
4

HW 50955 ‘Docld:32423532 Page 217

re

wy

3 February 1975

MEMORANDUM OF LAW

Proprietary Withdrawals and the Contingency Reserve

SUBJECT:
"REFERENCES: A. Memo to DCI fr C/CCS, dtd 8 Jan 74, subj:
Project MHMUTUAL Policy ; : ,
’ B. Memo for the Record fr Comptroller, dtd 19 Aug 74,

same subject

_. 1. Reference A recommended that there be returned tothe Agency
Reserve starting with calendar year 1973 that portion of MHMUTUAL annual
profits not required for Project needs. ‘The Director approved the basic _
‘paper on 8 February, but noted "surplus funds from MHMUTUAL earnings _.

will be returned to the Treasury rather than the Agency Reserve.”
Reference B recorded a telephone decision by the Director that " [w]hen -
‘funds are withdrawn from proprietaries, they will be transferred to the
Contingency Reserve...."

- 2, The purpose of this paper is to examine the legal aspects of these
policy decisions. The concept of the Reserve was established in 1952 as a

_ means by which the Agency would have flexibility to fund projects or. .

activities which had not been contemplated in the normal appropriation
_request. Its purpose was to create a mechanism to provide funds for:
unforeseeable requirements which would be-more rapid and secure than

the supplemental appropriation procedure employed by other Government

agencies. The Reserve has been funded by direct.appropriation and by
transfer of unobligated appropriations at appropriate times after the close

' of the fiscal year. Funds were and are released from the Reserve only with oS

the approval of OMB with subsequent notice of each Reserve withdrawal
furnished in writing to the two appropriations committees. - ,

a . re E-2 IMPDET -
a oo Wha ~ CL BY 000276

,

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gil

4
+

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Li

eds

BW 50955 *Docld: 324235532

3. In lieu of a specific annual appropriation act for the Agency,
OMB by letter notifies the chairmen of the two appropriations committees |"
that the Agency budget of a specific number of dollars is contained in the
DOD appropriation request. The letter also specifies the accounts in which

‘these funds are located. Inthe past where there were appropriations to the

Reserve, that letter would specify the amount of the operating budget and
the amount to be applied to the Reserve. After committee action, appropriate
letters, sometimes separately. and sometimes jointly signed by the chairmen _
of the two committees, are sent to OMB specifying what has been approved
for the Agency budget and confirming the accounts in which they are located.

Thereafter, the necessary transfers to the Agency are accomplished pursuant
to the. authority of Section 5 of the CIA Act of 1949, which was specifically

_ worded so as to permit appropriations for the Agency to be placed in the .

- accounts of other agencies and then transferred to the Agency free of all

’ limitations and restrictions on the appropriation from which transferred.

The effect of this was to. permit those funds to be expended under the authori~
ties of the CIA Act of 1949, ra ther than the authorities of the appropriation
acts from which transferred. A transfer under other authority such as the
Economy Act would require that the funds be spent in accordance with .

.. limitations of the appropriation fiom which transferred, both as to purpose
and annuality. Unlike any other agency, our “appropriation act" is the

- ECE

process described above and consists of the following principal elements:

Be
b.
oe:

d.

the OMB letter;

the chairmen letters;

the DOD appropriations act approved by the whole
Congress and signed by the President; and

‘the transfers to the Agency appreved by OMB and
authorized by Section’ 5 of the CIA Act of 1949. |

4. The question then arises whether a return of money from a

previously established proprietary can be placed in the Reserve and
later expended by the Agency under the law. There are several provisions
of law based on Article I, Section 9 of the Constitution, which states that "no

‘money may be drawn from the Treasury, but in. consequence of appropriations

made by law," Twenty years after the Constitutiom was ratified, the act.
from which present law derives was enacted. That law | is section 628 of

‘Title 3l of the U.S, Code which states:

Except as otherwise provided by law, sums appropriated
for the various branches of expenditure im the public service shall

guy 30 1815:

ph te
GEA

. Page 216 ~

wen be: applied solely to the objects for which they are respectively made,
‘and -for no others. _ ;

5, Illustrative of the uniformly strict interpretation given to 31 U.S.C.

- 628 is a decision rendered by the Comptroller General to the Secretary of
the Treasury and. reported at 37 Comp. Gen. 732 (1958). In this case ©
Congress had authorized an appropriation for payment of inequitable losses’
in pay sustained by military officers under emergency economy legislation,
but did not thereafter include funds for this purpose when it enacted appro-
priations for the Treasury. The Commandant of the Coast Guard had advised .
a subcommittee of the House Committee on Appropriations during appropriation

"hearings that, unless the Committee had an objection, it was intended to pay .
such claims for losses in pay from the Coast Guard appropriation for "Operating -
Expenses." Thereafter, the General Accounting Office Claims Division deter-
mined that over $30,000 in such claims were allowable, but the Comptroller
General was forced to conclude that no claims could be certified for payment

’ because there was no available appropriation earmarked for their payment.
Citing 31 U.S.C. 628 and stating the rule that "the appropriations provided
by Congress to the Federal agencies may be used only for the objects for

’ which they are made and no others," the Comptroller General decided that

. the statement made by the Commandant before the House subcommittee did not
have the effect of making funds appropriated as "Operating Expenses" available
for payment of the special claims. ‘The Comptroller General held that the
appropriate recourse was to submit a request for appropriation to the Congress. a

6. In 1849 the Congress sought to buttress the appropriation principle.
set forth in the Constitution by passing a law from which is derived 31 U.S.C.
484, which provides in part: . ;

The gross amount of all moneys received from whatever
source for. the use of the United States,... shall be paid by the
officer or agent receiving the same into the Treasury, at as

early a day as practicable, without any abatement or deduction
on account of salary, fees, costs, charges, expenses, or claim
of any description whatever.

'. Also, Section 487 of 31U.S.C., (originally passed in 1877) provides specifically _
' that all proceeds of sales of public property of any kind, (with certain excep-
tions not relevant here) shall be deposited and covered into the Treasury as
’ Miscellaneous Receipts and shall not be withdrawn or applied, except in

consequence of a subsequent appropriation. , ;

76 Where the Agency makes funds available to establish a proprietary
or to add additional investments, the funds are recorded on Agency books
‘as having been expended + and the Director certiBes t to the expenditure

pe Fay) FROM |
: -—Aw30 08 os

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under.section 8(b) of the CIA Act of 1949. I am informed that when an
expenditure of this type is recorded on Agency books, nevertheless, a
memorandum account is maintained so that the Agency has a record of the
precise amount of Government funds invested in the proprietary. I am also
informed that, if a proprietary were to be fully liquidated with the proceeds
scheduled to go to the Reserve, but the funds returned are in excess of the
investment, the excess would not be placed in the Reserve, but would be |
credited to Miscellaneous Receipts. Where funds are returned to the Agency
from a proprietary, the current procedure is for the Agency to "reverse"
the original expenditure entry and, for those funds which are to go into the
- Reserve, the Reserve account on the Agency books is credited, with notifi- ~
cation to OMB. : ; ;

8. Let us take-a hypothetical situation where 20 years ago the s Agency _
expended $1 million to establish a proprietary. At that time the $1 million |
would have been recorded as expended, ‘certified under the Director's
authority for purposes contemplated by the appropriation of 20 years ago. .
In the meantime, that $1 million would have been spent by the proprietary >, .
for salaries, purchase of equipment, or for other purposes. The Agency :
either supplemented its original expenditure with additional monies or the

- proprietary might have made a profit during these years. This proprietary,
at Agency direction, now liquidates its activities, including the selling of
assets. Under. the Constitution and the laws cited above, it is my opinion |

' that the law requires all such return of funds to the Agency to be covered
‘into the Treasury as Miscellaneous Receipts.

9. The Agency may not legally expend these funds once again without
the approval of the Congress, and by that I mean the full appropriations
process and not merely the approval of OMB and notification to our two

_ appropriations committees. The essential element missing in this latter
procedure is that there has not been an appropriation bill approved by the -
Congress as a whole and signed by the President. In effect, the Agency

' would have had its appropriation supplemented without the full appropriation
process.

G wa £L Uw —

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“NOTES ON THE SCHEDULES OF GAIN OR LOSS
ON THE SALE OF MHMUTUAL INVESTMENTS

Note #l

The MHMUTUAL. portfolio, from which the attached schedules of gain or loss
on the’sale of investments were taken, is not an accounting document in the
sense that it is used to account for funds handled by the Activity. The purpose
of the portfolio is to provide management with a picture of the investments held
by the complex at any point in time. The portfolio is nat audited per se, and in
past years no attempt was made to insure that each presentation tied directly ~
back to the previous portfolio; that has been done in recent years. Due to the .
lack of audit, certain errors were not discovered, and they were carried forward
to the present. One example is on the 1970 presentation of the sales of stocks”
to date. The total sale price of $2,226,883.29 when subtracted from the total
purchase price of $2,246,793.93 results in a loss of $19,910.64 instead of the |
loss of $27,802.99 as shown under the column marked gain or (loss) on sales.

The total gain.on sales to date should therefore be $177,437.51. For some un-
known reason, the balance carried forward to the 1971 schedule of gain on the

sale of equity is stated as $206,314.47 which involves an overstatement in the
cumulative gain on the sale of equity in the amount of $28,876.96. This error
has been carried forward to the present. :

Note #2

The portfolio figures cannot be directly tied in with the financial state-
ments for MHMUTUAL in the case of bonds since the statements reflect an average |
cost for all the bonds of a particular. issuer, and the appreciation ona dis= —
counted bond is recorded as income each year with a commensurate increase in the
book value of the bond.

Note #3

The only bond transaction during 1970 was ‘the sale of $50, 000 of ULS.
Treasury bonds. fhis transaction is found on the schedule titled "Debenture
Investments." Oo a ;

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CIA Domestic Real Property Holdings*

CIA has a variety of real property holdings in the United
States ranging from the major, overt Headquarters complex in McLean,

Virginia, to small leased "safehouse apartments in many cities.
Real property holdings also include seven CIA-controlled installations
used as training sites, supply depots, research and development .
centers, and communications transmitting and receiving facilities.
‘The 237 domestic real property holdings are summarized for. this
report as. follows:
a. Overt or nominal properties (overt properties are
identified as CIA; nominal properties as Executive

Office of the President, but CIA control is admitted

upon request) of which there are sixty-two (62);

b. Official cover properties (identified as under the
control of other U.S. ‘Government agencies and CIA rela-
tionship is classified from. CONFIDENTIAL through TOP
SECRET) of which there are fifty- -three (53);

c. Safehouses (properties, generally apartments or resi-
dences and generally leased, acquired for covert meetings)

‘of which there are eighty-one (81); and

* The information contained in this section has extreme sensitivity
as a grouped data package. It lists the entirety of CIA real property
holdings and personnel assets in the United States as of 13 January
1975; accordingly, release, unauthorized disclosure, or loss of this
- information would have severe operational impact on the activities

of CIA. ; ;

HW 50955 Docld:32423532 Page 245

d: Non-official properties (identified as private firms

which may be wholly or partially controlled by CIA and

housing CIA employees) of which there are forty-one (41).

Attachment 1 lists CIA domestic real property and provides

specific addresses for all overt and nominal CIA real property
holdings. Official cover properties, safehouses, and non-official
properties are listed by general location. Numbers of personnel
and utilization purpose are shown for each category of real property.
This report is developed as a real property summary; therefore, .
personnel data supplied are predominantly based on CIA space utili-. —
zation reports, and slight variation may exist. in some instances.

A limited number of CIA personnel are located in non-CIA-controlled
space -- for example, in the Pentagon, in private residences, or in
commercial companies -- and these properties are not listed in this
real property summary. Non-official properties not occupied by CIA
staff or contract employees are not listed. Attachment 2 is a sum-

mary sheet of all the previous figures.

HY 50955 Docld:32473532 Page 246

Washington, D. C. § Suburbs”
AL

' Washington, D,

Location

SECRET:

DOMESTIC REAL PROPERTY LISTING

Street Address

Overt §& Nominal Properties

Langley, Va
Washington, D.

Washington, D..
Oxon Hill, Md

Washington, D.
Washington, -
Washington, D.
Rosslyn, Va
Rosslyn, Va
Rosslyn, Va
Franconia, Va
McLean, Va
Arlington, Va
Alexandria, Va

Washington, D. C.

Arlington, Va

aaa

ape

Route 123 (CIA) :
Central Bidg. 2430 E St. N.W. (CIA)
East Bldg. 2430 E St. N.W. (CIA):

‘South Bldg. 2430 E St. N.W. (CIA)

10530 Riverview Rd. (FBIS)

Navy Yard, Bldg. 213, 1st & M, S.E. (EOP)
Navy Yard, Bldg. 159E, 1st §& M, S.E. (EOP).
Navy Yard, Bldg. 202, 1st § M, S.E. (EOP)
Ames Bldg., 1820 N. Ft. Myer Dr. (EOP)

Key Bldg., 1200 Wilson Blvd. (EOP)

- Magazine Bldg., 1815°N. Lynn St. (EOP)

(EOP)
Tyler Bldg., 1759 Old Meadows Rd. (EOP)
Chamber Conmerce Bldg, 4600 N. Fairfax (EOP)
901 Columbus Rd. (EOP)
AJAX Bldg., 1901 Penna Ave., N.W. (For)
1000 Glebe Road (EOP)

Official Cover Properties

3 Locations
4 Locations
1 Location
1 Location
1 Location
1 Location
1 Location

-1 Location

SECRET

‘Personnel

7,469
88
28
307

1,265
"45

510
668
340
213
274
364

18
84
22

48

15
62

Attachment 1

Pur pose

Hgs. admin. offices § printing bldg. :

Technical labs § offices
Technical labs § offices

‘Technical labs § offices

Counter-audio training & FBIS

antenna field :
Photo development §& analysis
Map storage

- Storage

Hqs. admin. offices

‘Hqs. admin. offices

Has. admin. offices
Supply depot §& R&D shops

_Elint § tech. admin. offices

Hgs. trng. offices
Technical training area
U.S. resident contact

FBIS photo § printing

Research § operational support
Translation § operational support
Foreign intell. collection

Supply depot § ELINT training
Counter audio lab’§ office
Document research analysis
Training lab & office

Field investigation office

Ez CL By 029557


SECRET

| DOMESTIC REAL PROPERTY LISTING —

_ Location Street Address

-C. Safehouses

37 Locations

D. Non-Official Properties ©
1 Location

Location
Location
Locations
Location : .
Location |
Location
Location
Location
Location
Location
Location
Location
Location
Location

Ped bet ped fed bead bed ped peal fd feb pd A) fmt ed

Arizona

1 Non-Official Installation
California ;

_ A. Overt _§ Nominal Properties

312 North Spring Street (EOP)

Customs Hse, 555 Battery St. (EOP)
Gross Ctr. Bldg, 3045 Rosecrans St. (EOP)
Fed. Bldg., 15000 Creation Road (EOP)

Los Angeles, Ca
San Francisco, Ca
San Diego; Ca
Hawthorne, Ca

SECRET

Da am

—I7 03 We)

‘Personnel Purpose

N.A.

i]
isa

iw)

wo
Bm OL GA LAR OD et et

_
_

13
14

Covert meetings —

Manages agent accounts 4 cover
backstop - .

Operational support (dormant)

Foreign intelligence collection

:Human source assessment

Debriefing site

Mgt. services for proprietaries
Research §& operational support
Public opinion analysis

Research admin. office

Travel support

Translation

Airline,‘ foreign operational supp.

‘Airline, covert admin. travel

Covert procurement, general
Covert commercial audit ©

Aviation equip. R&D and procure. °

‘

U.S, resident contact

U.S. resident contact
U.S. resident contact
Personnel § recruiting office

E2 CL By 029557

Dovid: 32423532 Page 248

HW 50955:

SE c RE T-
"DOMESTIC REAL “PROPERTY LISTING

Location ‘ Street Address . : Personnel Purpose

California

B. Official Cover Properties

2 Locations ; . a 38 Field investigation office
2 Locations . : 14 | Foreign intelligence collection
1 Location . : ; ’ 414 Paper plant
1 Location . 8 Field procurement office
. 1 Location - . ; , ‘1 Field supply office
1 Location , . : , 22 Gen. admin. support to sensitive
projects
1 Location 3 Air logistics support
1 Location 1

Audit of covert operations
C. Safehouses
12 ‘Locations : , 7 : , , N.A. Covert meetings

D. Non-Official Cover

- 1 Location 9 Covert Commercial investigation
4 Locations ; : 4 Foreign. intelligence collection
1 Location : , 19 “Management § admin. of sensitive
, . projects
3 Locations... 13 Contractor liaison, sensitive
: : . » projects
Colorado’
A. Overt & Nominal Properties
Denver, Co Bankers Bldg. , 24401 E and St. (EOP) os 7 U.S. resident contact
Denver, Co Bldg. 56 DFC, 6th & Kipling Sts. (EOP) — : “1 Field recuriting office
Connecticut . e.
A. Overt § Nominal Properties ~ 7
: . . eer
Hartford, Ct. Fed. Bldg., 450 Main St. (EOP) © . 3 U.S: resident contact zen
SECRET _ ee E2 CL By 029557 A
t&

Ho s5

Location

Florida

A. Overt_& Nominal Properties

Key West, Fl
Coral Gables, Fl

_B. Official Cover Properties

2 Locations
1 Location
1 Location
C. Safehouses
2 Locations

D. Non-Offical Cover

1 Location
2 Locations

1 Location

Georgia
A. Overt _& Nominal Properties

Atlanta, Ga

B. Official Cover Properties
1 Location

Hawail
A. Overt & Nominal Properties

Honolulu, Hi

‘SECRET

7 DOMESTIC REAL PROPERTY LISTING

Street Address

U.S. Naval Base (FBIS) .
R&N Bldg., 299 Alambra Cir. (EOP)

_3 Dunwoody Park (EOP)

Dellingham Bldg., 735 Bishop St. (EOP)

SECRET

Personnel

an

25
33
-16

NA. -

a

|

Purpose

Foreign broadcast station

U.S. resident contact

Foreign intelligence station
Foreign commo. center

Field investigation office
Covert meetings

Administers survivers' benefits -
R&D and procurement, aviation

_ equipment ‘
Cuban propaganda operations
U.S. resident contact

Foreign intelligence ‘collection
U.S. resident contact

E2 CL By 029557

}
!
a

DocId: 32423532 Page 250

HW 50955

SECRET

DOMESTIC REAL PROPERTY LISTING

Location Street Address

Hawaii
B. Official Cover Properties

1 Location
1 Installation

Illinois
A. Overt & Nominal Properties

Chicago, I11 Derksen Bldg., 219 S Dearborn St. (EOP)
Chicago, I11 Derksen Bldg., 219.& Dearborn St. (EOP)

B. Official Cover Properties

1 Location
1 Location

C. Safehouses
2 Locations
Indiana
. “A. Overt _§ Nominal Properties
Indianapolis, In . Fed. Bldg:, 46 E. Ohio St. (EOP)
Louisiana . ——
A. Overt & Nominal Properties -
New Orleans, La’ Masonic Bldg., 333 St. Chatles St. (EOP)

SECRET

Personnel Purpose

uw

Field liaison CINCPAC
“9 Commo’ relay station

1 Field recruiting office
10.—sO«UUS.S. resident contact

.22.. Field Investigation office
11 Foreign intelligence collection

N.A. . Covert meetings
2 U.S. resident contact

- 2 U.S. resident contact

E2 CL By 029587

|


Da as senses 8

penta

S

"SECRET

DOMESTIC REAL PROPERTY LISTING

Location , Street Address —
Massachusetts

A. Overt §& Nominal Properties

Cambridge, Ma Beta Bidg., 545 Technology (EOP)
Boston, Ma Fed. Bldg., Government Cénter (EOP)

B. Official Cover Properties

1 Location
1 Location

C. Safehouses .
2 Locations

Maryland

A. Overt §& Nominal Properties

Highland Pk, Md 14048 Woodward St. (EOP)
- Baltimore, Md’ 103 S. Gay Street (EOP)

B. Official Cover Properties .

_ 1 Location

1 Location

1 Location

C. Safehouses

1 Location

SECRET

NLA.

NAL

Personnel Purpose

U.S. resident: contact
Field recruiting office

‘Field investigation office

Foreign intelligence collection

" Covert meetings

U.S. resident contact
U.S. resident contact

Maritime research §& training
Security liaison

Training facility

Covert meetings

E2 CL By 029557

ar

te .

HW 50955 Docld:32423532 Page 252

SECRET

DOMESTIC REAL PROPERTY LISTING

Location — Street Address
Minnesota

A. Overt §& Nominal Properties

Fed. Bldg., Ft. Snelling (EOP)

Minneapolis, Mn
Fed. Bldg., 316 Robert St. (EOP)

‘St. Paul, Mn.
Missouri

A. Overt § Nominal Properties

St. Louis, Mo. Fed. Bldg., 1520 Market..St. (EOP)
Overland, Mo. - | MPRC Bldg:, 9700 Page Blvd. (EOP)
Kansas City, Mo Fed. Bidg. , 601 East 12th Str “(BOP)”

Nevada

A. Overt § Nominal Properties

None :
B. Official Cover Properties
1 Location
New York

A. Overt & Nominal Properties

; New York, NY- 575 Lexington Avenue (EOP)
New York, .NY Fed. Bldg., 26 Federal Plaza (EOP) :
_ Niagara, NY United Office Bldg., 220-222 First St. (EOP)

650 Franklin St. (EOP)

Schenectady, NY
: Loew Bldg., 108 W. _Jefferson St. (e0P)

Syracuse, NY

SECRET

Personnel Purpose:

ern

35

Una oO

U.S. resident contact
Field recruiting office’

U.S. resident contact
Field investigation office
Field recruiting office

Training §& R&D installation

U.S. resident contact
Field recruiting office
U.S. resident contact
U.S. resident contact
U.S. resident contact

E2 CL By 029557

WW 30955 Docld:324793532 Page 253


SECRET.
DOMESTIC REAL PROPERTY LISTING

Location Street Address
New York
B.

Official Cover Properties

1 Location
1 Location
1 Location’
Safehouses

23 Locations

’ Non-Official Properties

1 Location
2 Locations
2 Locations
3 Locations
1 Location

North Carolina

Ohio

OAL

ae

a ete SH

tne

We Tage

é

{

B,

‘1 Offical Cover Installation

Overt § Nominal Properties

Cleveland, Oh Fed. Bldg., 1240 E 9th St. (EOP)
Cincinnati, Oh Fed. Bldg., 553 Main St. (EOP)

Official Cover Properties

1 Location

Personnel

30
22

N.A.

wl

Purpose

‘Foreign intelligence collection

Field investigation office

Photo procurement, foreign persons -

Covert meetings

Foreign newspaper service’
Foreign intelligence collection
Proprietary management services
Overseas book distribution
Contractor's Liaison

Field training facility

U.S. resident contact
U.S. resident contact

Foreign intelligence collection

E2 CL By 029557

—) OT) Ra

|

X

~

Page 254

Docld: 32423532

|
HW. yo9ss:

mel: eed
Co i = Of IC (2) Re te

SECRET
DOMESTIC REAL PROPERTY LISTING

Location Street Address , : : ‘Personnel Purpose
Oklahoma ,

A. Qvert_§ Nominal Properties ;
Tulsa, Ok ~ : Center Office Bldg., 630 W. .7th (EOP) 2 U.S. resident contact

Oregon

A. Overt & Nominal Properties

Portland, Or Courthouse, Broadway § Main Sts. (EOP) . 1 Field recruiting office

Pennsylvania

A. Overt § Nominal Properties — (eee EEE So et oS = ete tye

Philadelphia, Pa Fed. Bldg., 600 Arch Street (EOP) 7. U.S. resident contact

Philadelphia, Pa Fed. Bldg., 600 Arch Street (EOP) 1 Field recruiting office |
Pittsburgh, Pa Fed, Bldg., 1000 Liberty Ave. (EOP) 8 U.S. resident contact |

Pittsburgh, Pa Fed. Bldg., 1000 Liberty Ave. (EOP) 1 Field recruiting office |
SF : i
_— |

Tennessee -

“1 Non-Official Installation , : ‘(47 Company) Aviation equipment procurement & .
: : _ R&D . as!
in
Texas “
=
A. Overt §& Nominal Properties ; 2
, Austin, Tx Fed, Bldg., 300 E. 8th St. (EOP} 1 Field recruiting office nl
Austin, Tx Fed. Bldg., 300 E. 8th St. (EOP) 1 U.S. resident contact i
Dallas, Tx _ Courthouse, 1100 Commerce St. (EOP) 7 U.S. resident contact 8
Houston, Tx — _ . Courthouse, 515 Rusk Ave. (EOP) 4 U.S. resident contact - 5
. : : . / : Sw
B. Official Cover Properties ; os . : ; , ne
, : . . d, na
: . . - eH
1 Installation . 2 Ordnance depot : 5
SECRET - 7 B2 CL By 029557 al
. ; al.
iT]
th
|
&


oN getey

oe

ars

ite

ne 8 85; ay

SECRET

DOMESTIC REAL PROPERTY LISTING

Location. - Street Address

Texas |
C. Safehouses
1 Location

Utah

A. Overt & Nominal Properties
Sait Lake, Ut Fed. Bldg., 125 S. State St. (EOP)
Virginia
A. Overt & Nominal Properties”
. Richmond, Va Fed, Bidg., 400 N. 8th St. CEUP)

B. Official Cover Properties : :
q Installation (4 Stations)

1 Installation . -
‘1 Location

1 Installation

1 Location

Washington -

; A. Overt §& Nominal Properties

Seattle, Wa "Courthouse, 1010 Fifth Ave. (EOP) —

B, Official Cover Properties

1 Location

SECRET

mos,

Personnel Purpose

NLA;

Covert meetings .

2 U.S. resident contact |

286

76
72

24

.

U.S. resident contact

Records Center, Training, R&D,
Commo Facilities

Field Training Site

Technical R&D

R&D project ——

Minor ordnance storage

U.S. resident. contact

Foreign equipment analysis

E2 CL. By 029557 |

Docld: 32423532 Page 256

HW 50955

‘

SECRET.
DOMESTIC REAL PROPERTY LISTING

Location Street Address . “Personnel Purpose ©

Washington
C. Safehouses
1 Location . N.A. Covert meetings ©
Dd. Non-Of ficial Properties .
1 Location . . . 3. Contractor liaison ©
Wisconsin °
A, Overt & Nominal Properties

Milwaukee, Wi Courthouse, 517 E.’ Wisconsin Ave. (EOP) : 2 U.S. resident contact

Attachment 2

—
4

SECRET

CIA Domestic Real Property Summary Sheet

; Overt’ §& Cole ;
Location Nominal Official Safehouses Non-Official

Washington, D. C. and.
Suburbs
Arizona
Califormia
_ Colorado
. Connecticut
Florida
Georgia
Hawaii
Illinois
Indiana
Louisiana
Mary Land
‘Massachusetts
Minnesota -
issouri
Nevada
New York ;
North Carolina
Ohio.
Oklahoma
Oregon
Pennsylvania . :
Tennessee : 1d
Texas , : ,
Utah:
Virginia
Washington
Wisconsin

ee
~t

13 37 16
10° 422 9

“tn URW m ne a
Nw sea
Nr N
-
i

23 , 9

tb ON ee

Bh bn

ped pet fet bet
k= 00

nN
ine)
nN
tnt
~

TOTALS 53 as aL


eC I en

ane
HW 50955 Doclds@2423532- Page 259

29 AUG 1973
|
MEMORANDUM FOR: Deputy Director for Science and Technology
, _. Deputy Director for Intelligence

Deputy Director. for Management and Services. *
Deputy Director for Operations a

INFO : : Inspector General
SUBJECT. : Questionable Activities:

a

1. As an aspect of the allegations of improper CIA activity

{

in connection with the Watergate and associated matters, the

Inspector General was directed’ to assemble all information avail-—
able in the Agency on any such| activities, Certain specific matters.
were provided to him, and the Director by memorandum of 9 May 1973. >
directed all employees to report any activities, current or past, |
"which might be construed to be outside the legislative. charter of
this Agency." This information was assembled and consolidated by 9
the Inspector General in a-memorandum of 21 May 1973 and certain
individual memoranda thereafter supplementing it. This material

was used in a detailed, page-by-page review of all such information
with Senator Symington and Congressman Nedzi, as Chairmen of the
Senate and the House Armed Services Intelligence Subcozmittees,
respectively. In addition, I undertook very specific commitments

dn my confirmation hearings to ensure that the Agency will remain

_ within its legislative charter.’ I am arrenging for the published.

transcripts of those hearings to be circulated throughout the

Agency for compliance, and at that time will reaffirm the specific | -

direction made by_Dr. Schlesinger in his memorandum of 9 May 1973. -

This will also be incorporated into appropriate regulations.

2. With respect to the specific questionable activities which

| were reported as a result of the search made throughout the Agency,

however, I believe it essential to take specific action in order

- that these not seem to be condoned or overlooked. I have therefore |
- » developed specific instructions on each reported activity. These
are included in the attachments to this memorandum, and have -the

force of specific direction to you to pass on to appropriate
fubordinates. the instructions outlined. Separate packages of such

| dnstructions are being developed for each Directorate in order to .
} Tespect the sensitivity of some of the activities discussed, includ- f713/ MI
sing those which are deemed quite appropriate within CIA's charter. ris

JUN 25 1975

Peay

Veen ten 6 ee 2 ae eae or tt

— SECRET-EvES ONLY ~ 7

Zio '


HW 50955 poctd:32423532 Page 2600S UG

. General Counsel. |

“Attachments

Cryde

1
ood
od
1

Similarly, each activity is placed on a separate page so that the . a
Deputy Director concerned may most easily forward it to the office
or offices directly concerned without distributing it more broadly.

3. In the event that these instructions raise substantial
difficulties of implementation or compliance, I would appreciate
your raising such cases with me directly, with whatever recommendaq
tions you may have for modification to carry out the spirit of the
action undertaken here but to avoid undue disruption of legitimate |
activities. In the absence of such notice, I will expect full

compliance with the instructions outlined herein.

h, Each: addressee Deputy. Director is instructed to recommend
to the DDM&S modification or addition to Agency regulations of °
appropriate language to reflect the. direction included in this

.memorandum and attachments addressed to him: DDM&S will be

responsible for consolidating such recommendations and making an
overall report to the Director through the IG, coordinating with

pei”

cr
«

(27 August 1973)

Stribution:
{Original - 1¢

~.Mr. Colby
~ DDSéT
DDI

FRO
JUN 25, 1975

ae viA

SIONET-EVES MY

MEMORANDUM

_ SUBJECT: Domestic Proprietary Companies

*

the Cover and Commercial Staff

Corporate cover, as managed by :

45 an appropriate support for pur overseas operations. To the

degree that domestie proprietary or cover companies are required,

a clear justification will be developed as to the relationship of

_their support of our overseas operations.

_ JUN 25 1315

I
-lAS


“MEMORANDUM ce | —

“SUBJECT: Project MEMUTUAL 95, a

!
:
'
‘
. |
1
i

Project MHMUTUAL will be operated in ‘conformance with appro-

1

priate legal restrictions. Arrongenents are being made for the

briefing of the appropriate Congressional comittees.

, attention will be given to avoiding any possible conflict of in-

‘Particular

- terest situations with firms with which the Agency has leontractss

° Particular concern will also be exhibited over possible. inbroper

» Influence on ‘the stock market or Stock dealings throug

"vestments involved in MHMUTUAL.

1
i
‘
'
i
1
‘
i
t

@ ee.

Sebi HEE

i

Y

an
cy

HW. 50955 [Docld:32423532 Page 262

1
|
{
'
'

UNS

GIA

the in-

oe

5 POM.

5 1975,

SN ES tee
AEE

yo , weiss
EVES CY

t
a

MEMORANDUM

SUBJECT: Domestic Proprietary Companies 7

Corporate cover, as managed by the Cover and Commercia ,

Staff, is an appropriate support for our. overseas operations,’ To the

' Suggested addition: . re AL

Corporate cover, including notional companies, as managed

by the Cover and Commercial Staff, is, an appropriate support for

‘our overseas operations. “To the degree that domestic prop ietary

or cover companies are. required, a clear justification will

> — oo

developed as to the relationship of their support of our overseas

a tes . : ‘ 4
operations, me, co, . a "]

v oo RRA
; FT peeeyy i |
Dowld: 32493532 Page 263. Pye in| oo , ae


fay 3 G2 :
44% sis

Project ‘MHMUTUAL

Project MHMUTUAL will be operated in conformance wi

(appropriate legal restrictions. Arrangements are being made for


